Australian importers could be forced to cut margins or increase prices as Chinese manufacturers increasingly look to pass on soaring resource costs and increasing local wages.
The availability of cheap Chinese imports has been a boon for both importers and consumers in recent years, helping to keep prices down and margins up despite rising wage costs and inflation in Australia.
But now massive price increases for basic manufacturing inputs such as iron ore and coal and an overheating Chinese economy could be about to bring that era to an end.
One business owner who is already seeing increased import costs from China is David Mills, chief executive of kitchenware party plan business The Chefs Toolbox.
Mills says increased costs are cutting into the profit margins his business gets on the kitchenware he sources from China.
“There is enormous pricing pressure building there – oil and commodity prices generally are going up and that filters through. All the stuff that is good for BHP filters through to the underlying price of products, and underlying labour costs have gone up recently by 8% to 10%, so all that is feeding into our costs,” Mills says.
Other business owners report a more mixed picture. Paul Greenberg, co-founder of online retailer Deals Direct, says he has seen a mix of price rises and falls from the wide range of products he imports from China.
“Yes there have been some price increases; ot so significant that we have had to pass them on as higher prices or shred our margins,” Greenberg says. “Broadly there has been an increase in costs, because of natural demand and supply factors in China as much as anything else, but the impact on us has probably been neutral.”
But Greenberg acknowledges that businesses importing from China are likely to see increased price pressures move through the system in coming months.
“We sat down with many of our suppliers a couple of weeks ago and said if we lock in orders and commit to volumes there can ome kind of price preservation, and that was well received,” Greenberg says. “Overall, I’d say we will be alert but not alarmed over the next six to 12 months.”
The extent and pace of the price hit Australian businesses take from China may depend on which part of the country they are sourcing goods from.
Mike Caminer, chief executive of SmartPack Kitchens, says he has seen no increase in the price of the kitchen components he is buying from a factory near Beijing but has heard a different story from those sourcing goods from other parts of China.
“The people I know who have experienced a lot of price increases are more in the southern China area,” Caminer says, although he acknowledges that it is “just a matter of time” before he faces a price increase himself.
Both Mills and Greenberg say the soaring Australian dollar has been a key factor in offsetting increased production costs in China. The Australian dollar has outpaced the Chinese yuan, which is broadly linked to the US dollar in recent months, improving the purchasing power of Australian businesses.
“We have forward ordered a lot of deals and that is helping as the Australian dollar goes up. We are fortunate in that we haven‘t locked in currency, so we’re doing well out of that, and from our perspective, let’s hope the Australian dollar just keeps on going,” Greenberg says.