China Faces Inflation

Good News for McAllen, TX – Reynosa, Tamps., Mexico

Higher wages, reduced exporter tax breaks, and an increased value in the yuan have led to inflation in China. More and more U.S. manufacturers have been outsourcing to China over the past decade due to lower labor costs, which results in a lower cost to U.S. consumers for the finished product. Because of the inflation in China, companies have discovered that China is not as cheap as it used to be and they are struggling to find ways to cut costs.

The following factors are driving companies out of China: workers leaving their jobs for better pay, the steady rise of the yuan vs. the dollar making U.S. goods cheaper, the value-added tax subsidy dropping from 13% to 5%, freight costs from Chinese ports to Los Angeles rising sharply because of increased demand for ships, and as the Federal Reserve cuts rates (causing the dollar to drop), American price competitiveness is increasing. In some sectors in China, wages for high-skill professionals are even doubling. Since companies cannot maintain the competitive advantage they once had in China, they have to look at other locations.

The higher wages, higher exchange rates and higher transportation costs for those shipping from China to the U.S. is good news for McAllen, TX – Reynosa, Tamps., Mexico as our strategic geographic location appeals to companies, especially those that have been outsourcing to China. Our region offers low wage rates, an available workforce, lower transportation costs and faster speed to market, which means companies can find ways to keep a competitive advantage by relocating to our region.

Keith Patridge, President and CEO for McAllen Economic Development Corporation, says “Our strategic geographic location offers many advantages to companies all over the world. Our region has one of the largest markets in the world on the north side of town and a $2.80 fully fringed wage rate on the south side of town.” Patridge continues, “Companies can cut costs, offer custom products and have a faster speed to the North American market compared to anywhere else in the world.”

The McAllen Economic Development Corporation is a not-for profit organization under contract with the City of McAllen to create jobs and generate revenues for the citizens of McAllen by attracting new industry and helping existing companies to expand.

“We are the new Texas. Bilingual, Bicultural and Pro Business.”