China’s Ministry of Finance announced in June that the country will cut or completely eliminate tariffs on 33 commodities, ranging from fuel to textiles.
What does this mean for the sourcing industry?
1. If you happen to be buying from a supplier that used one or more of these 33 commodities as the base material for production of the item you buy, then you should be pushing for a discount.
I’m working on the English translation of this list and will publish it in one of the next few blog posts.
2. More importantly, this is further proof the Beijing is trying to bring down inflation in China.
Ricky, a character from the whacky Canadian TV series “trailer park boys” is known for his hilarious malapropisms (“Denial and Error”; “looks like a tropical earthquake blew thru here.” Having grown up on the south side of the boarder in Buffalo NY, “Worst case Ontario” is my personal favorite line from Ricky.
Another great Rickyism is “Supply and Command” which he used when trying to explain economic forces at work in the trailer park.
Actually, this is a great phrase to describe the situation in China. Market forces of supply and demand are at work, but unlike in the West, the central government can manipulate and command resources without having to develop a consensus from outside the party. When they have a good idea (like bring down inflation) they can take action quickly and without impediment for the benefit of the people.
When I say people, it is not just Chinese that are benefiting from Beijing’s fight to bring down Chinese inflation, but foreign buyers and consumers win as well.
The inflation of the past year in China has factory owners unsure about what will happen next. It also has employees asking for more and more money to cover their best guess of where the Consumer Price Index (CPI) will land.
When things are uncertain, Chinese suppliers don’t cross their fingers and hope for the best. They try to put a price tag on the risk and then add this into their sell price. Because of the lack of confidence in past months about Beijing’s ability to get things under control, Chinese suppliers have been liberal in their estimate of how much they need to mark up to cover the risk of price increases between the time you place and order and the time the order ships. As a result, the cost the foreign buyer is paying is higher than need be.
Luckily, Beijing has the ability to move quickly and decisively against inflation. As the June headlines tells us, China is eliminating the inbound tariff on 33 items. It is not by chance that these items are key inputs needed by manufacturers in a wide range of industries.
They are also making every effort to bring down the cost of housing and stabilize the economy. In the post “China’s manufacturing slowdown” I explain how slowing down the growth rate in China is a good thing for the foreign buyer.
Hopefully China’s “supply and command” will bring a sense of stability back to factory owners and workers and put the rising costs of exported products in check.
Wishing you successful China Sourcing!
Author, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book/)
(Shameless Plug: I got a baby on the way, she’ll need new shoes, if you like my blog you will love my book!)