The global trade outlook is bright, but higher wages in China could tarnish business a bit.
In its quarterly Retail Sourcing Report, researchers at CBX Software said higher wages in China could cause issues for manufacturers while noting that the global shipping industry remains stable and the major economic indicators point to an “optimistic” second half of the year.
“The second half of 2017 looks optimistic for global trade as exports from Turkey, India, Thailand, Cambodia and other countries all saw [year-over-year] increases,” researchers said in the report. “China has concluded trade and development agreements with various countries, which will support infrastructure growth and further economic development, giving China increasing global influence.”
But earlier this year, several provinces in China raised wages, and manufacturing is expected to be impacted. “In the first half of 2017 the authorities in Shanghai, Shenzhen, Shandong, Fujian, Shaanxi and several other provinces all raised their minimum wage levels,” CBX researchers said. “The rest of China has no done so yet, reflecting a sentiment of keeping wage growth in check to maintain competitiveness.”
The analysts noted that the increases reflect a deceleration of wage increases as compared to other years, but said “despite attempts to cool wage inflation, fewer Chinese workers are being paid at minimum levels due to an aging labor pool and growing demand for skilled workers.”
“In fact, labor shortages are having a greater impact on wage levels that government mandated minimum wage levels,” the firm noted. “While many provinces are freezing wages in an attempt to stay competitive with growing manufacturing countries in the ASEAN region, due to demographic and macro-economic conditions, rising costs of workers in China will continue to put pressure on manufacturers through 2017.”
In the fashion apparel segment, these higher costs could be offset by lower prices on wool and cotton. Regarding the global shipping industry, the outlook is stable, CBX analysts said as the market “heads into the peak season.”
“Continued scrapping of Panamax class vessels due to the expansion of the Panama Canal and of older ships is likely to continue, which will somewhat offset global capacity,” the analysts said in their report. “Rates are expected to remain low in 2017, yet will be higher than 2016.”
CBX said European exports are expected to grow “based on a stronger Eurozone economy, driving demand for shipping to and from Europe.” Meanwhile, spot freight rates on the Asia and North Europe/Mediterranean trade lanes “declined as we head into the second half of 2017, despite the peak season and closely managed capacity and space constraints.”
In the Asia and North America trade lanes, rates reached a 10-month low, the firm said “despite growing volumes and the approach of the peak season.” The company noted that “cargo volumes are building and vessel space will become tighter, with the expectation of a strong peak season ahead.”
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