Costs are going up in China and there’s probably more to come

A mid-size toy manufacturer informed me last week that their costs from China had gone up 15% this year. This is in line with reports I got from my contacts in Hong Kong earlier in the year that resin prices were going up aggressively. 

Toy manufacturers looking for price increases to ease off may be concerned by a report in the April 2, 2010 New York Times, entitled "Coming visit may signal easing by China on currency,"that the renminbi (the Chinese currency) may finally rise against the dollar.   If the Renminbi goes up the cost of toys goes up as well.  

Congress has called for the Obama to name China as a ‘currency manipulator” which will mean that the administration can take economic retaliatory methods. China doesn’t want that. So, it seems that those who read the Chinese diplomatic tea leaves see Chinese President Hu’s coming trip to the White House as a sign that the Chinese currency is going to increase in value. Here is how the article by Vikas Baja puts it:

…[T]he announcement by Chinese authorities on Thursday that President Hu Jintao will be visiting Washington in two weeks is being seen as the beginning of a possible easing of the friction over the renminbi China experts said it was unlikely that China would have agreed to the visit unless there was at least an informal assurance by the Treasury Department that it would not be named a currency manipulator either on or around April 15 — the deadline for the Obama administration to submit one of its twice-a-year reports on foreign exchange to Congress.

What should the exchange rate be? It seems like there are as many opinions on that as there are economists. Based upon what I have read,  I would bet on the renminbi to increase 10% in value over a number of months. 

Whatever the increase is going to be, look for the price of making toys to continue to go up.