In the longer term, higher costs in China could spell the end of an era of ultra-cheap goods, as well as the beginning of China’s rise from the lowest rungs of global manufacturing.
Economists have been warning for months that this country’s decade-long role of keeping a lid on global inflation was on the wane.
“China has been the world’s factory and the anchor of the global disconnect between rising material prices and lower consumer prices,” said Dong Tao, an economist for Credit Suisse. “But its heyday is over. We’re going to see higher prices.”
Chinese imports constitute 7.5 percent of spending by Americans on consumer goods, but they make up much bigger shares of several popular categories, including about 80 percent of toys, 85 percent of footwear, and 40 percent of clothing.
Even when the market share held by Chinese goods is relatively small, their low prices put pressure on other producers to keep costs down.
Whether Chinese factories will succeed in making wholesalers pay more for their goods and whether retailers will be able to pass much of their higher costs on to American consumers is unclear, analysts say.
But companies that operate in China or buy from here are already reeling from mounting cost pressures that they say will weaken their profits and could disrupt their supply chains.
Those supply lines were already called into question by large-scale recalls of Chinese exports last year, involving everything from toys to pet food to tires.
“This is what I call the perfect storm,” said Alan G. Hassenfeld, the chairman of Hasbro, one of the world’s largest toy makers, during a recent visit to China. “We’ve got higher labor costs and labor shortages, plastic prices have gone way up and we’re doing more safety testing.”
While no reliable figures exist on average Chinese wages, experts say that factory wages have risen 80 percent or more in many coastal areas in recent years, with the lowest wage about $125 a month.
Some of the current cost pressures are actually by design — Beijing’s design.
After years of complaints from the United States and Europe about China’s growing trade surplus, authorities here have removed incentives that once favored exporters of cheap goods.
Starting last June, for instance, China removed or reduced tax rebates on hundreds of items for export, including toys, apparel, leather, wood and other goods, effectively taxing those industries.
But the actions are also part of Beijing’s desire to move China higher up the global manufacturing chain — away from the least- finished products, like plastic children’s toys, toward more advanced exports that require skilled labor, like small electronics and even automobiles.
Whatever the government’s motivation, many Chinese exporters say the timing of the rebate cut was disastrous. Their factories had been struggling to cope with problems that included power shortages, higher raw material costs, rising wages and inflation in other areas.
For instance, the cost of some types of plastic has risen more than 30 percent in the last few years because of higher oil or petroleum costs. Plastic is a major component in toys and other consumer goods.
Many Chinese factory owners say a tough new labor law, which went into effect on Jan. 1, complicates the hiring and firing process and threatens to raise labor costs even more, at a time when parts of the country are already plagued with labor shortages. Some factory owners say there have already been strikes and other turmoil over the interpretation of the new law and how it should be applied.