Behind the "Deflation" Illusion: Rising Labor Costs Are Reshaping Made-in-China

On October 15, 2025, China’s National Bureau of Statistics released the latest Consumer Price Index (CPI) data for September: CPI fell by 0.3% year-on-year, marking several consecutive months in negative territory (National Bureau of Statistics of China [NBS], 2025a). At first glance, China appears stuck in a deflationary rut. But focusing solely on headline CPI risks missing the real story—the true signal lies in the underlying structure.

The data reveals that core CPI (excluding food and energy)—the best gauge of underlying domestic demand and cost pressures (NBS, 2025a). Meanwhile, service prices rose 0.6% year-on-year. And behind service inflation lies a powerful, irreversible force: rising labor costs. This subtle shift is not a blip—it’s a hallmark of China’s economic maturation.

1. CPI Weakness ≠ Falling Costs: Deflation Is a Mirage, Labor Inflation Is Real

The current CPI decline is largely driven by food prices—pork, fresh vegetables, and eggs fell by 17%, 13.7%, and 11.9% year-on-year, respectively (NBS, 2025a). These fluctuations stem from short-term supply shocks or weather conditions, not a broad-based drop in production costs.

In contrast, service prices remain resilient, reflecting tightening labor markets. In manufacturing hubs like Yiwu, Dongguan, and Suzhou, factories face a persistent “labor shortage.” Young workers increasingly avoid factory lines, skilled technicians are scarce, and employers are forced to raise wages to retain staff (NBS, 2025b).

In Zhejiang Province—home to Yiwu—the 2025 minimum wage has risen to RMB 2,490/month, up nearly 30% since 2020 (Ministry of Human Resources and Social Security [MOHRSS], 2025). Average monthly wages for general manufacturing workers now exceed RMB 7,000, with skilled positions commanding RMB 500–800 per day (NBS, 2025b).

This cost pressure hasn’t yet fully flowed through to consumer prices—but it will. For labor-intensive sectors like small commodity manufacturing, where labor accounts for 30–50% of total costs, any wage increase directly lifts factory gate prices.

2. Rising Labor Costs: China’s Inevitable Path Toward Advanced-Economy Status

China is now following the same developmental trajectory as Germany, Japan, and South Korea. Once per capita GDP surpasses USD 10,000—a threshold China crossed in 2019 and reached USD 13,000 by 2024 (World Bank, 2025)—labor shifts from “unlimited supply” to “structural scarcity,” making wage growth an economic inevitability (Lewis, 1954).

Three deep structural forces are accelerating this shift:

Demographic headwinds: The working-age population (15–59 years) is shrinking by over 5 million annually, with a sharp drop in youth (20–35 years) entering manual labor (NBS, 2025b).
Rising education levels: With a 62% higher education enrollment rate, a new generation demands career growth, dignity, and work-life balance—not just overtime pay (NBS, 2025b).
Policy realignment: China’s “common prosperity” agenda prioritizes raising labor’s share of national income, while stricter social insurance enforcement adds 10–15% to total employment costs (MOHRSS, 2025).

This means China’s competitiveness will no longer rely on “cheap labor,” but on efficiency, automation, innovation, and brand value. Low-end manufacturing is already relocating to Vietnam, India, and Bangladesh, while domestic producers must upgrade to survive.

3. Yiwu Small Commodities: The Final Window Before Price Hikes

As the world’s largest wholesale hub for small goods, Yiwu offers the clearest view of this transformation. Many suppliers are still absorbing inventory and honoring legacy pricing—but a major shift is imminent.

Several converging factors are pushing Yiwu toward a price reset:

Year-end holiday orders (Christmas, New Year) are surging, tightening capacity.
The 2026 Lunar New Year falls unusually early (February), compressing production timelines.
Cumulative pressure from wages, environmental compliance, logistics, and regulatory costs is reaching a breaking point (NBS, 2025b; MOHRSS, 2025).

Multiple Yiwu exporters confirm that categories like festive decorations, home organization, and electronic accessories are preparing price increases of 5–15%, likely to take effect by late Q4 2025 or early Q1 2026.

For global buyers, this isn’t just a risk—it’s a strategic opportunity. Now is the golden window to lock in pricing before the next wave of cost-driven adjustments.

4. Strategic Action: Procure Proactively in a New Cost Era

In the face of structural labor inflation, waiting is the riskiest choice. Forward-looking buyers are adopting three key strategies:

Place bulk orders early: Secure pricing for Q4 2025–Q1 2026 to hedge against post-holiday increases.
Partner with professional sourcing agents: Platforms like YiwuAgents offer on-the-ground factory audits, quality control, and end-to-end logistics—reducing communication gaps and quality risks.
Upgrade product strategy: Shift from pure low-cost sourcing to value-driven, differentiated products that justify higher margins.

After all, future competitiveness won’t be about “who buys cheapest,” but “who integrates the most reliable, responsive, and innovative supply chain.”

Conclusion: Move Beyond the “Low-Cost Illusion” and Embrace High-Quality Manufacturing

Short-term CPI volatility can mislead—but the long-term rise in labor costs is clear and irreversible. China is evolving from the “world’s factory” into the “world’s smart manufacturer,” and this transition will inevitably reshape pricing and supply dynamics.

For global importers, the question isn’t whether “Made in China is getting more expensive”—it’s how to partner with a more mature, capable, and innovative Chinese supply base. And right now, acting swiftly to secure Yiwu small commodity orders isn’t panic—it’s foresight.

Act today—not because prices are rising tomorrow, but because the old era of ultra-low-cost manufacturing is already over.

Frequently Asked Questions (FAQs)

Q1: Is China really experiencing deflation in 2025?
A: While headline CPI is slightly negative due to falling food prices, core CPI and service prices are rising—indicating underlying cost pressures, especially from labor. This is not broad-based deflation but a structural shift.

Q2: Why are labor costs rising in China despite weak CPI?
A: Labor costs are driven by demographics, education levels, and policy—not short-term consumer prices. With fewer young workers and higher expectations for wages and working conditions, factories must pay more to attract staff.

Q3: Will Yiwu small commodity prices increase in late 2025?
A: Yes. Industry sources confirm that many Yiwu suppliers plan 5–15% price hikes for popular categories by Q4 2025 or early 2026, driven by rising wages, compliance costs, and seasonal demand.

Q4: Should I place bulk orders now to avoid future price increases?
A: Absolutely. Locking in prices before the year-end holiday rush and the early 2026 Lunar New Year is a strategic move to secure margins and ensure supply continuity.

Q5: How can I source reliably from Yiwu amid rising costs and complexity?
A: Partner with professional sourcing agents like YiwuAgents, who provide local expertise, quality control, logistics coordination, and price negotiation—reducing risk and saving time for international buyers.

References

National Bureau of Statistics of China. (2025, October 15). Consumer price index report for September 2025 [Press release]. http://www.stats.gov.cn

National Bureau of Statistics of China. (2025). China statistical yearbook 2024. http://www.stats.gov.cn

Ministry of Human Resources and Social Security of the People’s Republic of China. (2025). Notice on adjusting minimum wage standards in 2025. http://www.mohrss.gov.cn

World Bank. (2025). GDP per capita (current US$) – China. World Development Indicators. https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=CN

Lewis, W. A. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22(2), 139–191. https://doi.org/10.1111/j.1467-9957.1954.tb00021.x