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;:i: Rising inflation.uld wage costs are transforming the Asian giant's industries and its.role as the worfd's low-cost factory. John Garnaut reports from Shanghai. he worldt second largesr PoryTtrr^Sprr{pany ad id as, ts Coffroffuiga new and un_

erpecred problem- The costs

of labour,-materials and rert *tinn" spiralling upwards rit- jqg _t49 are spiraltring ul rts grear production heartIand in so'*hern Chinl. lLustd to be that money made the rules aPq Dru-ltrnatios"ls such as adidas could ertrart-a better deal Uy-G.*,;;i"i t9 m3:e_offshore. T'he company *r,. *o.f thd 2so factories hers ,ft;;.l 'In? .;.h clothing E.!o.y employs 3OOO people. o-, ryeragg while everyln"" fa.t,o.y

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Brn the Chinese Governme# is 'po

its head.,*r,'-.. . The endless, seemingiy indomitable factor-

res Lhat stretch from the Hong Kons border north up the pearl River deha Tn G";"i;"g province and through ttre coastal p."ftrr.d oI Lluna are-choking on their ow-n succ"*s.

ney have exhausted vdrat was thoueht to be g bongnLtes,s barrel of ch.ap taUorii. r

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have erecred rheir sheds on rhe #ur"ni furmland that is cheaply available. m,'"V h*" devoured so mucb oit corton, rubber, coa_l iulo sreel that cornmodiry prices have re_ p"r1d *suonger for longef-than th. wo;a b_31 E"*, And they *. -pidiy tiog,p

loneer g=r*iffioduced 4tr1i"h.g/.r*;"; I h"s, r."mty \,BS '"fr- China's- polirical tolirance for ii.ltins"thl t"rehoffiffi;fi **! rLy and waterwaJn *i* t"*1. r,"i"Jr&urftnrflr and in€reased the.minimum

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production margux eyen tighter, r:ne rnttage coming from local govern_ andTo-a--Iessef extent tf,. ?"nt*t T]egla Sovemrnent is veffEElr_-Fsrl"s wiiii;; sqrr€€zing

Andersoru-the head'of S".i"f ",ij ;;;;;: at adidas. ulLo dodt tdl us about your p.ril;;; ;6}# nln-^

For thousands of small and multinadonal manufacturers the story is the .ame- fo. !h.-, the world economic order is turning on

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Inere are Do more obvious corners to cut and fe]v lgnrajning efficiency S"i* J "i rract. Irw-end manufacnrrers are shutrinc

down or moving out. A Hong K"ns

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assooarion daims 3OOO factories have shur down in the Pead River deha rhi" t;.- Th; G.uaagdong local rnei;e 15;n11 of r"'p"ru pictures of newly abandoned factory n;;-"rrd

But a grow-ing proportion of manufac_ turers are steeiing themselves to push their nsrng costs throuqh ro the frnal siop on the productton chein: ih. colsumers.

About 1Li0 nrilior, patrs of shoes and 125 rnjllron ;arrrr::r: ,rere sourced in Chrna Dy.adtdas la-v ye:,. nf,r, h says it rs padiing tp a large pa.rt of ;rs Ch.ine-se producrion "ani pov1ng rt to the countrl,/s lower_wage bt[ lop.sucaly c.halJengng inl-"rla p.oui"G ft,. €ompany r.^nU ncl re,.-cal any price.rlse plars. "We

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have no plans to ihung" tle pricing.policy of our pro,i".t ,. ,"y, a"i" Puu, the hea'i rf :Jr,ras corporale pubhc

relations at head ofhce in Germanv. Bur other I,Ju-11.agc manufact'urers are ma}UnS tnelr tni( rri',,ns .lear. They are mov_ ing skimping on inpurs an<1 fighting as ro grve consumers sorne of rherr pricing piin.

"The consumer. our customers.

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