YIWU, Zhejiang - For exporters in East China's Yiwu city, which supplies half of the world's Christmas products, the year 2010 started surprisingly well. Orders jumped to the greatest volume in years, following a slump during the world economic crisis.
But, even more surprisingly, after a year of hard work to meet the surging demand, the manufacturers ended up with barely any profits as Christmas approaches.
"Rising wages, the appreciation of the yuan and increasing raw material costs - we saw them coming. The problem is that we never expected them to get so bad within the year," said Chen Jinlin, general secretary of Yiwu's Christmas Goods Industry Association.
Rising demand from the global market burdened workers with seemingly endless work and overtime, while bosses racked their brains searching for raw materials.
"Yes, I earned more this year, but I'm not happy. It was a very tiresome year. Besides, everything has become more expensive," said a worker surnamed Zhuang with Hangtian Handicraft Co (HHC), one of Yiwu's largest Christmas goods manufactures.
Zhuang is to return home to central China's Hubei province for the coming Spring Festival. She expected the traditional New Year celebration would cost nearly 15,000 yuan ($2,257) or half of her savings for the year. "It costs to travel, to have dinners, to give gifts. And I have a family to support."
Zhuang declined to give her full name, worrying her employer may frown upon her words. "I understand the difficulties of our workers, but who understand the company's difficulties?" asked Li Genjun, deputy General Manager of HHC.
HHC's labor costs have risen by 30 percent in 2010. "The wages have been raised from 1,200 to 1,700 yuan per month. And the workers are still unsatisfied," Li said.
Many of China's labor-intensive manufacturers are having a hard time, as the once seemingly endless supply of cheap manpower drains away.
The turning point was 2004, before which China had an oversupply of manpower and workers had no say. After 2004, workers began to negotiate with employers, said Cai Fang, head of the Institute of Population and Labor Economics, Chinese Academy of Social Sciences.
Labor disputes peaked in 2010 as strikes were reported in many parts of China. In southern Guangdong province, one of China's major manufacturing hubs, walkouts suspended the production at the Toyota and Honda assembly plants.
The surge of disputes were contained only after manufacturers raised their workers' wages. Foxconn, the world's largest electronics contractor, hiked its assembly line workers' average monthly pay from 900 yuan in June to 2,000 yuan in October.
The manufacturers are further burdened by surging costs of raw materials. "The prices of plastics, paint, metals, glue, cotton, and everything you can think of, are going up," Li said. His company spent 15 percent more than last year for the same amount of raw materials.
Despite China's efforts to curb inflation, including the first hike in interest rates in three years, prices keep going up. The Consumer Price Index (CPI), the main gauge of inflation, for November reached a 28-month high of 5.1 percent, compared with the 4.4 percent in October.
Behind China's inflation is the depreciation of the US dollar, which drives oil prices and, in turn, pushes up prices of almost everything, said Ye Xiang, general manager and senior analyst of VisionGain Capital venture fund.
Additionally, the depreciation of the US dollar, or to put it another way, the appreciation of the yuan, further cut exporters' profits.
The yuan has appreciated by about 2.7 percent since the beginning of the year. "Our net profit margin has always been very small, about three percent means a lot to us. Some manufacturers were even driven out of business," Chen said.
"Now we are working hard to create new products, and hopefully they can keep attracting buyers despite rising prices in the years to come," Li said.
