China costs to surprise investors

Investors in the retail and manufacturing sectors may be underestimating the risk posed by the rising cost of manufacturing in China and transporting goods to the United States, a Credit Suisse report concludes.
The report, released on Tuesday, cites a proprietary survey of mostly private consumer, industrial and technology companies that source products from China.
It finds growing concern among US and European companies that higher costs -- coupled with an inability to push through price increases due to the weak economy -- will pressure profit margins in 2011.
Credit Suisse, which said it sees the risk of very limited pricing power for consumer companies next year amid tepid economic growth, found 40 percent of respondents are "very worried" or "extremely worried" about wage pressure in China; 29 percent are very or extremely worried about transport costs; and 18 percent are so about the rising yuan currency.
About 40 percent of executives said their costs on Chinese-sourced goods are up at least 6 percent from a year ago, with nearly a third reporting a double-digit increase. The survey polled 28 firms with annual sales of at least $500 million that rely on China for a portion of their goods sold.