September 2010

Low cost country CHINA?

Our economy is booming – no question. The last doubters are silent and only some analysts mention a recession in the future but monthly growing rates of 30 or even more percent compared to the last year months can not be neglected. There are already allocations and delivery times between 30 and 40 weeks since a couple of months.

Everybody who claimed about long delivery times will be not happy about the following information. We believe that in China the prices will explode pretty soon. The reason is that the minimum wages of actually 600 – 800 RMB will be fixed up by the government to 2000 – 2500 RMB. The reasons are strikes in the automotive industry e.g. Honda had strikes of over 3 months, Ricoh as well as the famous Foxconn, the supplier for all the products of Apple, had finally forced the Chinese government to actions. In order not to lose the control over the working army they are now trying to be on the top of the movement and order tremendous increase of wages. Also the weekly working time of up to 7 days and 8 – 12 hours will be forbidden.

No doubt this will have very negative influence on all products including electronic components and especially passive components. We are used to have an up and down at the semiconductor prices but now also the passives will show increasing prices. We got already announcement from suppliers for price increases of 35 %! Not only the wages will go upwards, also the raw materials will be more expensive.

Additionally the Chinese government will reduce their exports of seldom raw materials which are definitely important for the production of many high sophisticated products like LCD displays, batteries, magnets, ferrites and other high tech products. The policy is to keep the very rare materials inside the country for the own production.
Another dramatic information came to us just recently. In the province of Changzhu has been announced, that the power consumption of electricity have to be reduced for 4,2 % compared to the last year and therefore the government decided that companies may work for example 9 days continuous and then stop production for the next 5 days. By this order, the production capacity will be dramatically reduced for up to 15 % and the consequence again are delays of deliveries and price increases. Therefore everybody looks for diesel driven generators to have a own power supply and to get independent from the public power supply. Our dependency from the Chinese market and its government will get more and more severe.

Buyers which estimate decreasing prices for 2011 might get very disappointed. Even the grey or black markets do not offer anymore products. If there might be any danger for the actual boom it could be initiated by the shortage of components and the increasing prices.

In 2 months we will go to the electronica with big expectations for the future, but now bad surprises can not be excluded. The low cost country China starts to polish their low cost image. Textiles, toys and shoe industry have already left China and it is the intention of the government to get the electronic industry moving from the east cost into the middle China or west part of China and to produce only high class products at the east cost. All these are not any more bad dreams or nightmares, dramatic changes have already started.

Best regards,
W.ENDRICH


‚electronica‘ 2010, Munich, 09. - 12. Nov. 2010
Please make a note for your visit at our booth A5.138!