China - Shifting Economic Winds

There are two interesting stories on China's place in the world of manufacturing tonight. Since Americans have spent a good chunk of the new millenium crapping our pants over the emergence of China and India, it seems worthy to note the emerging trends.

First off, this article notes that due to inflationary pressures, China has begun raising the minimum wages across the country. It states that the Guangdong province is rasing wages by up to 18%, and and that the minimum wage in Tibet went up by almost 50%.

The wage increases, aimed at relieving food and other price pressures, could instead fuel inflation, analysts said. Higher wages are also likely to raise prices of U.S. imports from China, and possibly reduce China's attraction as the world's manufacturing center.

In a related story from NPR this evening, we are advised that the booming dynamics of China's manufacturing sector in the last decade has resulted in China no longer being the cheapest player on the block for manufacturers.

As profit margins disappear, some companies are even moving to lower-cost countries such as Vietnam. In fact, according to China's state-run press, 1,000 shoe factories closed in Guangdong province in 2007.

(....)

Samuel Kuo, says he couldn't afford to pay rising labor costs. Other factories have been pinched by increasing costs for materials such as glass, paint and steel pipe.

" 'Made in China' isn't cheap anymore," Kuo says. "The low value-added products will have a hard time surviving in China … because the costs here are too high."

Now, I have nothing personal against the Chinese people, but as an American who has watched manufacturing move relentlessly from here to there, it's certainly been a cause of concern. And clearly, this will not stop the trend, nor does it mean that companies wont simply move jobs to Vietnam, or wherever the cheapest labor is located at the moment. Additionally, as I understand it, there are still billions of impoverished Chinese living in the rural regions, so this new trend also has its downside.

As the "made in china" trend emerged over the last decade, I recalled how the same dynamic seemed to have occurred in Japan in the 80s. These trends cannot continue indefinitely before the economics eventually change the course of the game.

But it is also hard not to feel some relief that the relentless Chinese manufacturing juggernaut is becoming less...well...relentless.