On the radio news this morning in Shanghai was a discussion that Unilever & P&G were to increase their prices in China next month by up to 15%. This reminds me of a news item 2 months ago when Carrefour was blamed by the Chinese Government for contributing to food inflation by over-charging for certain goods. In the Carrefour case, Carrefour was subsequently found "guilty" and fined. I wonder if the Chinese Government are again using their (controlled) media to heighten consumer anger prior to "resolving" this issue with Unilever and P&G through force?
China's rampant inflation is largely of its own making, with loose financial policies stoking an already burning fire. And recent announcements about dramatically increasing the minimum wage over the next 5 years will only make the situation worse. However, expecting manufacturers and retailers to take up the slack is naive, especially the foreign-owned companies who do not have the Chinese financial safety net of being state-owned.
For many years, making a profit was an optional component in the land-grab of building a foreign-owned business in China. But not anymore. With developed economies still underperforming, the China honeymoon period is well and truly over and Global HQs are expecting their Chinese businesses to break even at the very least.
But with margins being squeezed from all sides, FMCG and consumer goods businesses in China are in for a rough ride, and it would not surprise me if we see one or two more big names pack their bags and leave.
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