The Chinese Economic Woes, just get worse. Last night it was reported that for the third month in a row Chinese costs at the wholesale level continued at double-digit levels.
As the Chinese Producer Price Index rose at 12.9%. This marked the second month when the Chinese cost of materials at the wholesale level remain elevated.
As you know, China's economy is in trouble right now. The Chinese manufactures are as frustrated as the American consumer, over the continuing Supply Chain mess. As the Chinese often must wait weeks to get paid for some of the goods shipped to America.
This, on top of the ongoing Evergrande saga. Which is really the unwinding of the massive leverage created in the Chinese Real Estate Sector.
So, now inflation hits the Chinese manufacturers' cost of goods and components. This is an especially dire situation for those Chinese factories which make the goods sold around the world.
You see, China is the low-cost provider for all the global manufacturing. It's how they became number 1 in production in the world. They undercut prices where ever they went. Including the US.
That's how China was able to capture vast swaths of American production. Enticing companies like Nike and Amazon, were the first two, to move their production to China. Over the past 3 or 4 decades, this has been a wildly successful strategy.
But perhaps now, China has met their Rubicon, as the cost of raw materials and components in China are rising a third faster than principal consumers, the Americans.
And these wholesale costs in China are rising much faster than competitors in Japan, South Korea, and Mexico. A potential opportunity for all those countries to make in-roads on the Chinese manufacturing juggernaut.
This isn't the first time we've seen this occur. It's the nature of low price marketing. It's a wonderful strategy until someone comes along with even lower prices.
We've seen that lately as China has been losing market share to countries like South Korea and now Viet Nam. Just this week you may have seen that Taiwan has become the US preferred source for Semiconductors. Beating out China.
Japan went through exactly this same cycle in the years following World War II. Back in the 1950's we used to deride items that were “made in Japan.” The point was that although they were cheap, they were also of poor quality.
But Japan changed all that, developing world-class products with brand names like SONY and Toyota. Products whose quality was second to none.
China has not taken that step. Name a world-class Chinese product? It's hard to do. In fact, most American Multinationals who produce goods in Chinese factories try to hide that fact. It's very difficult to find out just where many multinational's goods are made.
China has not mastered the quality issue. And China has not developed those unique world-class brands as the Japanese did years ago.
So what's left for China. Their strategy of the world's low-cost provider is being squeezed by now 3 straight months of double-digit wholesale cost increases.
They still have not developed those world-class, quality brands which the Japanese did.
And they have significant problems on the financial side of the economy, where Evergrande is but one of the growing number of leveraged real estate firms that are struggling right now.
China's economy is in trouble.