What is remarkable is that the last 5 years have seen "deflation" until the recent rises. No wonder Western manufactures were feeling squeezed and were moving production to China in their thousands.
One interesting observation is that the reason prices were so low for so long and why prices have taken so longer to pick up speed is the relocation of factories from the coastal hubs to the less developed regions where there is still a plentiful supply of cheap labour and improving infrastructure.
Here is a quote I never thought I would see:
"We have stopped our sock production because we can't find enough workers."
Even in China the economics of scarcity hold. More importantly there is also a shortage of skilled labour that may be more pressing and requires the Chinese government to invest more heavily in the domestic education system.
Heat in the workshop [FT]
The "China price", that once unbeatable benchmark retailers pay for the products made in the world's workshop, is not what it used to be. Data compiled by statisticians in China, Hong Kong and the US all show that, after at least five years of deflation, Chinese export prices have begun to creep up over the past 18 months.
"China's era of exporting deflation to the world is coming to an end," says Jing Ulrich, Hong Kong-based chairman of JPMorgan's China equities business. "Manufacturers are raising their average selling prices and feel confident they can pass on any future [cost] increases. Pricing power has returned to a number of industries due to consolidation, the closure of smaller producers with poor environmental and safety records and natural attrition over the past half-decade, when many manufacturers faced severe margin compression."
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Jonathan Anderson, an economist at UBS, cites Hong Kong statistics because "they are closest to the Chinese factory gate". These show the China price inflating at about 3 per cent a year.
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The wonder, however, is that the China price has not been accelerating at a much faster clip - as it would have to before China's export juggernaut began to slow. The country's January-September exports grew 27 per cent to $878bn (£432bn, €620bn). As Jim Leonard, a Boston-based trader for East West Basics, a trade sourcing company, puts it: "Volume covers a lot of sins."
One answer to the riddle can be found in southern Jiangxi province. The region is famous for being the cultural homeland of China's Hakka or "guest" people, whose name derives from their itinerant history. But county governments in the area, near where Mao Zedong and his ragged band of peasant rebels began their Long March to power, are now playing host to a new generation of migrants - factory owners from Hong Kong, Taiwan and further afield, all seeking cheaper bases for operations away from China's coastal manufacturing hubs.
"We treat the companies that invest in our industrial park as gods," says Zhong Xuhui, vice-chief of Longnan county. "We assign a government official to serve each big company, helping it prepare administrative documents. Companies in our park don't waste their time and energy on paperwork."
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Labour, land and power costs in the Pearl and Yangtze deltas, for example, have been rising at double-digit rates. There have been exponential price increases for essential raw materials such as copper and petroleum-based plastics. Now China's general level of inflation is setting off alarm bells in Beijing, having touched 6.5 per cent in August.
Adding to these pressures, the renminbi has appreciated by 7 per cent against the US dollar ever since it was allowed, three years ago, to drift from its mooring of Rmb8.30 to the greenback.
Mr Anderson argues that this last phenomenon is largely academic in export sectors where factories are merely turning around imported - and therefore often US dollar-denominated - components. But that has not stopped exporters from trying out the excuse anyway, especially last year when the renminbi crawled past the Hong Kong dollar, which is still pegged to its US counterpart at a rate of HK$7.80. And why not, asks Mr Leonard, who sources houseware products for American retailers. "You'd be crazy not to ask."
"Increasing labour and raw material costs are having a significant impact on my business," says Yu Zhonghua, owner of a hat and sock factory in Yiwu, in the Yangtze River Delta. "We have stopped our sock production because we can't find enough workers. Three or four years ago, we could easily find workers to make socks for Rmb900 [$120, £59, €85] a month. Now, even if we pay Rmb1,400-Rmb1,500, they think the job is too tiring and the pay not enough. Other small sock makers face the same situation."
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The fact that the China price has barely budged relative to its underlying cost pressures is partly a reflection of how fat life was for China-based exporters - most of them owned by Hong Kong, Taiwan and other overseas investors - through the 1990s and the first few years of this decade. Stephen Green, a Shanghai-based economist with Standard Chartered, recently visited some of his bank's manufacturing clients in Shenzhen, across the border from Hong Kong, and says that net furniture margins there have fallen from an "unnaturally high" 30 per cent a few years ago to a more reasonable 10 per cent.
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"It's hard to find skilled workers here [in Longnan]. That hurts our efficiency," he adds. While it takes three months to train a worker in Longnan, highly skilled workers can be poached from the Pearl River Delta's much deeper talent pool. The monthly wage rates at Top Form's three China factories sum up their capabilities: Rmb1,600 in Shenzhen, Rmb1,200-1,300 in Nanhai and Rmb1,000 in Longnan.
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"[Manufacturing] activity is moving away from the coast," agrees Bruce Rockowitz at Li & Fung, a trade sourcing company with 16 offices on the Chinese mainland. "Where the product is today is not where it was yesterday. You can't look at [China] as one country. We look at it as a multi-country sourcing area."
Yet change beckons even for relatively new-found destinations such as Longnan. "In the beginning, we didn't choose what type of companies came here," Mr Zhong, the county's vice-chief, says in his thick Hakka accent. "But now we don't want companies that need lots of labour, consume too much electricity or occupy large tracts of land. We now welcome capitalintensive and high-tech companies."
When Top Form arrived in Longnan, hundreds of people would queue outside its gates looking for work. Now a gathering of 30 or 40 workers would be considered a good-sized crowd. As Mr Ho says: "We can never stick to one place for good. For now it's Jiangxi. But Jiangxi may not be competitive in five years' time. Maybe our next factory will be even further inland."
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