Soaring CPI puts squeeze on manufacturers

13:54, June 15, 2011      

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A 34-month-high consumer price index (CPI) in May has left little maneuvering room for manufacturers and required them to get stronger, more efficient and more creative, experts said on Tuesday.

The National Bureau of Statistics (NBS) reported on Tuesday on the major economic indices of the country in May. In line with market expectations, China's consumer price index (CPI), an indicator of inflation, hit 5.5 percent, up 0.1 percentage points from April, because of severe imported inflation largely driven by the rising international prices of grain and petroleum.

China's producer price index (PPI), which measures upstream inflationary pressures, soared 6.8 percent from a year earlier, up 0.3 percentage points from April.

"The rising costs of labor and raw materials are squeezing small and medium-sized manufacturers, and we can hardly do anything to reverse this trend," said Zhou Dewen, chairman of the Wenzhou SME (small and medium-sized enterprise) Development Association.

Members of the association find it more difficult to sign contracts. "This is the time for industrial associations to take action, to discuss their current situation, make suggestions to the government and seek government support," Zhou said.

So far, Zhou has directed the association and its members to research their options. He said the association is trying to get more help from the government, including lower taxes and easier financing. Apart from channeling the pressure to downstream consumer products, to keep their heads above water, the enterprises have to get stronger, he said.

Ma Guoshui told China Daily that his textile company in Shaoxing, Zhejiang province, has similar difficulties. His answer is to be creative and produce more value-added products.

"Our exports slid 10 percent in 2010, but thanks to the efforts of our research team, our newly developed products drew more orders and commanded an even higher price because they are more popular and competitive in the market," Ma said.

Ma's company exports up to 10 million yuan ($1.54 million) in textiles to Europe and the US every year, and he believes expertise is the key to success in times of economic hardship.

"To battle with the rising costs, my advice to manufacturing companies is to raise prices in the short term and shift the business mode in the long term," said Liu Shengjun, deputy director of the Lujiazui International Finance Research Center, which is affiliated to the China Europe International Business School.

"Rising costs are eroding manufacturers' thin profit margins. If they pass on the price pressures to consumers, that will lead to higher CPI," Liu said.

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Source:China Daily
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