CHINA SET TO LOSE LEVERAGE AS CHEAP LABOR SOURCE

Asian Markets , China , Deutsche Bank , Labour Costs , Uncategorized , US Dollar , USA , Yuan Jan 20, 2016 No Comments

 

NEGOTIATOR’S TAKE:  The advantages of sourcing from China are shrinking; savvy purchasers are looking at moving production back to North America.

 

01.19.16 – Sharp rise in wages will likely lead to further devaluation of the Yuan

Presidential hopeful Donald Trump’s campaign promise that he will get Apple Inc. to stop making their computers in China and start making them in the U.S. isn’t being taken seriously in some circles.  But looking beyond the Republican presidential front-runner’s rhetoric, the recent acceleration in wage growth in China suggests that the day when it becomes too expensive to outsource to that country may be closer than expected.  Though, the benefits to the U.S. economy may not be exactly what Trump envisions.

 

Deterioration in Chinese competitive edge

“Wages in China have grown much faster than in the U.S. and this has resulted in a significant deterioration in competitiveness in China,” Torsten Slok, chief international economist at Deutsche Bank, said in a note.  Chinese labor costs have risen 7% annually for the past 15 years while for the U.S. manufacturing sector, the growth rate has been negative, according to Deutsche Bank’s data.

 

Significant impact on U.S. economy

To counter the effect of higher wages, Slok expects the Chinese government to further weaken the Chinese currency this year, pushing the yuan USDCNY, -0.0790% down to 7 per U.S. dollar from 6.58 currently—roughly a 6% depreciation.  On the whole, a move of this magnitude isn’t likely to have a significant impact on the U.S. economy. . . . Read the rest of this ProPurchaser sourced article, HERE

 

SOURCE: MarketWatch

AUTHOR: Sue Chang, Markets Reporter – Bio at MarketWatch – Follow her on TWITTER

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