Rising Costs in China Seep Into U.S. Market

Mei, owner of the Nantong Eurofield Art's Toys, whose products are for newborns to 3-year-olds and are sold at Target, Wal-Mart and Toys R Us, has had to raise the prices of some products by more than 50 percent. He said a little more than half of his customers accepted the new prices. The others did not renew their contacts.

Mei said that is more than fair given what his business is dealing with. He said he is not trying to eke out more profit; his sales in 2007 were half what they were in 2006. He is just trying to make sure his company survives.

Mei outlined several factors that are putting pressure on his final price. For example, he said, the dollar is down 12 percent against the Chinese yuan. Also, he said, "the tax rebate is down 2 percent, labor costs are up 20 percent. . . . Raw material costs on average are up 10 percent."

Mei said companies that tried to keep prices stable were not able to pay their operating costs. "In our area, half of the toy factories are all closed due to these reasons," he said.

The situation is similar for Universe Home Textile, whose customers have cut orders by a fourth because of a 20 percent price increase, said Jin Maozheng, who works in the company's foreign trade department. He Wei, a sales manager at Blue Sky Arts Packing in the eastern city of Wenzhou, said her company is also suffering from price increases. The company makes a variety of bags, including the environmentally friendly totes sold at supermarkets. He said his company has had to raise some prices by more than 20 percent to make a profit.

"We lost quite a few customers due to this. The customers feel helpless too," he said.

Chen Baoze, sales manager at the Cagnan Shengguan Cap Workmanship company, has been luckier. He said that when he points out to customers that his company's profit is only 20 to 30 cents per hat, "the response we get from customers are generally, okay, they can understand why we raise the price."

In the same vein, Shao Changping, sales manager of Lamo China, a vendor of home appliances based in Ningbo, said he uses a simple calculation to argue his point. "The rise of our export price is in proportion to the fall of U.S. dollars. The dollars depreciated about 12 percent in the past year; our price went up 12 percent," Shao said.

The effect of these price increases from factories is already showing up in U.S. stores and other retail outlets.

Chris Lu, office manager for the Shenzhen office of Michigan-based NAS Global Trade, sells automotive gauges to service stations in the United States. Because its supplier increased costs, NAS also had to, Lu said. A set of automotive tools last year cost $15; today the company is selling them for $20.

Despite this, Lu said, "we feel we are making less and less money. This year profit is down 15 to 20 percent."

Yao Sheng, who works as a sourcing agent for footwear in Shanghai for Steve & Barry's, a Port Washington, N.Y.-based retailer that operates 200 stores in 33 states, said, for example, that in 2006 the company paid $8.70 for a particular pair of basketball shoes. Now it pays more than $9 for each pair from its Chinese supplier. The retail price for its popular Starbury II sneakers has gone up from $9.98 to $14.98.