Containers being loaded on to a ship in Qingdao, northeast China’s Shandong province. A global rush for raw materials means Chinese factories are facing the fastest rise in input prices in almost 26 years. Image Credit: AFP

Washington: Business is booming for Zhejiang Zhendong Leisure Products, which churns out about 1 million folding chairs a year from its factory in eastern China, many of which end up on American porches and gardens across Europe.

A spike in demand since the pandemic has led to a backlog of orders lasting until next April and has given the company enough confidence to raise prices by 10 per cent. Rather than hurting demand, “buyers are placing more orders now for fear that prices might rise further in the future,” overseas sales manager Sonia Lu explained from her booth at the Canton Trade Fair in the southern city of Guangzhou.

Those who want a parasol next to their outdoor recliner face an even steeper increase. Shaoxing Gaobu Tourism Products Co. Ltd., which makes beach and garden beach umbrellas sold through retailers like Walmart Inc. and Carrefour SA, has raised prices about 20 per cent and isn’t worried about losing orders either.

“Whichever sellers our customers go to, the reality they’ll have to face is the same: price increases,” said sales person Lyric Lian.

That was the consistent refrain from exporters at the world’s biggest trade fair, where China’s strict quarantine rules restricted foreign buyers to only a handful last week compared with the thousands during pre-pandemic days.

Price anxiety

The message about higher prices will add to rising anxiety that a spike in global inflation won’t be as “transitory” as assumed by policy makers such as Federal Reserve Chair Jerome Powell.

Price hikes by exporters come on top of record shipping costs - mostly paid by importers rather than manufacturers - which are almost 300 per cent higher than a year ago, according to maritime advisory and research firm Drewry.

For years, China’s factories have acted as a brake on global inflation as they cut costs to keep foreign customers amid sluggish demand and competition from up-and-coming manufacturing rivals like Vietnam. But China’s export boom since the pandemic has changed all that, giving manufacturers confidence to ask foreign customers for more.

And with global demand recovering after the pandemic, the higher prices aren’t putting customers off: Chinese exports are forecast to rise 21 per cent this year, the biggest jump in over a decade.

Rising input costs

But there’s also a chance that price rises could become steeper. A global rush for raw materials means Chinese factories are facing the fastest rise in input prices in almost 26 years, and Beijing has said factories could face a 20 per cent hike in their electricity costs due to a power crunch.

Chen Zijian, a sales manager at Guangzhou GL Supply Chain Co. Ltd., which makes garden products such as watering cans for export to the U.S. and western Europe, said he has hiked prices by 10% this year, and he could go further.

“The electricity price is rising so we are raising our prices too,” Chen said.

A company’s size is the decisive factor in whether it can absorb price rises, according to Stanley Chao, founder of All In Consulting, which works with U.S. companies sourcing from China. Some Chinese companies in sectors like electronics, toys and textiles are hiking prices between 20 per cent -3 0 per cent in year-on-year terms, he said.

“Smaller factories that operate small profit margins are passing the costs to their customers,” he said. “The larger suppliers, that operate on higher margins and higher efficiencies, are able to hold the line.”

Most Chinese manufacturers can absorb higher costs without making losses, according to official data that shows the typical margin for manufacturers in August was 6.6 per cent, better than their pre-pandemic margin of 5.5 per cent.