Husband in Hong Kong

The following is a combination of emails from my husband who is currently in China.

Alan heads up one of our factories. He is from Beijing originally, but went to college in Wisconsin and worked in Office Depot Global Sourcing in Boca Raton. He returned to China and setup a furniture factory with a friend named Simon Chan who has a wealthy uncle. The company is actually a Hong Kong company - -but factories are on mainland China (Shenzen area).

Alan told us yesterday that 7,000 factories in southern China went out of business in 4th Quarter 2007 because of the currency change (dollar vs. China’s RMB). They anticipate even more bankruptcies in 2008. This will continue. Prices to US companies (and any country) will continue to rise throughout the year.

Understand the changes in currency exchange rate took place over a couple months and eliminated about 10% of the factories’ profits. Government instituted several more programs that are hurting factories:

- eliminated 4% of export holdback return in 2007…effectively a 4% tax on all export business

- forcing companies to pay/fund social security like program…good program, but costly

- new laws requiring overtime pay, weekend pay….costing factories more money

At the same time, raw material prices are escalating like crazy worldwide. Anything petroleum-based (plastics, synthetics such as foam and fabric) are way up due to oil prices up. Steel prices have gone through the roof everywhere. I heard a report on CNN saying that if you want something made of steel buy it now, don’t wait, in 6-8 months because the price will be way up then.

Additionally, China is consuming so many raw materials that the demand is very high. Shrewd material suppliers know they can increase Chinese companies prices and since the demand is so high, the companies will have to pay it. That, in turn, is going to drive up prices around the world (all countries) on anything produced in China. We call that ‘inflation’. And that is a dirty word.