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China’s Soaring Factory Costs Send Inflation Signal to the World

Higher prices for raw materials and supply bottlenecks are boosting producer prices, which could eventually show up in consumer indexes abroad.

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Illustration: Patrick Edell for Bloomberg Businessweek

Bryant Chan’s factory in Heyuan, in China’s Guangdong province, turns out Nerf guns, LeapPad toy tablets, and other playthings for major U.S. brands, as well as electronics, such as a gadget that can capture data on golf swings. The president of Hong Kong-based Wynnewood Corp., Chan has seen prices for paint, screws, springs, solvent, metal, batteries, and packaging rise as much as 15% this year. Plastic resin has climbed up to 40%. “To put it very simply, everything has gone up in price,” he says. “This increase has been much steeper and across a broader range of categories than we have typically experienced.”

To illustrate, Chan breaks down the contents of the company’s trail camera, a device used by hunters and wildlife photographers. The electronics, which make up 40% of its production costs, are now about 10% more expensive. Packaging, which represents one-tenth of costs, has seen a 10% increase. And while plastic accounts for only 2% of the production costs, the surge in resin has had a noticeable impact. When the higher input prices are added up, the camera is now 6% more expensive to make.