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Cheap's getting more expensive as China copes with rising costs

China's runaway economic boom of the past several years may be hitting some speed bumps, meaning higher prices for toys, clothing, furniture, and the thousands of other products that have been outsourced by American companies taking advantage of cheap labor and lax or nonexistent regulatory controls.

A recent World Bank quarterly report projects a 9.6 percent expansion of China's gross domestic product in 2008, down from its 10.8 percent projection last September, and the lowest since 2002.

This at a time when its best customer, the U.S., is coping with its own economic woes — a slowdown that looks like a recession and feels like a recession (but which government economists assure us is not), and rising inflation (which those same economists contend is minimal, if one doesn't count food and energy).

If the U.S. economy does go into recession, it could put “a significant dent” in China's economic growth, says the United Nations report, “World Economic Situation and Prospects 2008.”

The U.N. analysis includes a more dire projection, based on an even more severe drop in the U.S. housing market; such a scenario, it says, could slash China's economic growth to less than 8 percent.

Toss in the ongoing decline in value of the U.S. dollar, rising wages for Chinese labor (now as much as a whopping $125 per month for many factory workers), increasing environmental/regulatory costs, and more costly energy, and analysts say prices of Chinese exports could go up by 10 percent this year — more than four times last year's 2.4 percent.

Products from China represent 7.5 percent of purchases by U.S. consumers, although some categories are much higher, among them, toys, 80 percent, and clothing, 40 percent.

The U.N. report notes that since China's 2001 accession to the World Trade Organization, its trade with the rest of the world has been growing three times faster than the world average. Were it to be able to maintain that pace, it would become the world's No. 1 exporting country in 2009. Last year, the U.S. trade deficit with China was a record $233 billion.

Despite racking up more than $970 billion in worldwide export sales in 2006, China is still a newcomer to the art of industrialization, and being the world's lowest-cost supplier has not been without some major problems — product safety chief among them.

From toys contaminated with lead to pet food laced with pesticides and other product safety issues, many involving deliberate actions by manufacturers taking shortcuts to shave costs, U.S. consumers have become increasingly wary of the Made in China label.

To try and assuage buyers and keep their products flowing into U.S. and other major markets, Chinese factories have had to adopt more stringent quality control procedures, and mounting pressures from the world community are forcing them to adopt environmental protection and human rights measures.

Combined with stratospheric energy costs, huge price increases for raw materials such as steel and copper, rising wages, and higher transportation expenses, it all points to higher prices for all those Chinese goods on Wal-Mart shelves.

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