The producer price index for China rose to 9% in May, which is the fastest increase in production costs since 2008. It was then that the index rose to 9.13%.
Gan Jie, a professor of finance and an academic director for MBA programs at Cheung Kong Graduate School of Business; expressed:
“These companies are more pessimistic. They see a very sharp rise in costs, and they think it’s going to run until the end of the year.”
America’s imports from China have already risen by 2.1%. So, why are product costs rising in China?
For months, China’s factories have been absorbing the shock of rising material costs and now is when the factories and manufacturers have started distributing those costs to their buyers. This is due to the supply chain disruptions during the COVID-19 pandemic, which impacts industries all around the world.
If things are able to even out now that the pandemic seems to be slowing down, the higher costs may soon dissipate.
Manufacturers are trying to see how they can work around these rising costs in the material. According to Christopher Tse, the chief executive officer of Musical Electronics Ltd., the manufacturers have no choice.
“In the end, if we have no choice, we have no choice. But we will try everything to save costs instead of passing too much to our customers.”
What Does This Mean for the US?
With product costs rising in China, expect to see this trickle into the U.S. Prices for items and materials will see an increase. The most prominent will be on the store shelves. Countries such as the United States, Germany, and more will be seeing an increase in their products from imports. This shows that the demand for products from China is still as high as ever - even higher than before. With the COVID-19 pandemic forcing people to remain at home, online shopping was at an all-time high. Factories were forced to continue to produce at a higher rate, forcing Chinese factories to keep having to crank out products.
The part of this that has countries dreading this rise is that there isn’t really a choice. America and other countries have put almost all their manufacturing in China, so if America wants to continue getting their products, they may not have a choice, but to pay the price that China is asking for.
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