Interesting

If you've read the news in the past 7 years, you'll know the "China story" - low-paid Chinese workers, low-cost Chinese goods, booming Chinese growth, dying manufacturing industries in the rest of the world.

Well, that story may be coming to an end. As reported in the NYT:

“China has been the world’s factory and the anchor of the global disconnect between rising material prices and lower consumer prices,” said Dong Tao, an economist for Credit Suisse. “But its heyday is over. We’re going to see higher prices.”...

[C]ompanies that operate in China or buy from here are already reeling from mounting cost pressures that they say will weaken their profits and could disrupt their supply chains.

Those supply lines were already called into question by large-scale recalls of Chinese exports last year, involving everything from toys to pet food to tires...

While no reliable figures exist on average Chinese wages, experts say that factory wages have risen 80 percent or more in many coastal areas in recent years, with the lowest wage about $125 a month...

After years of complaints from the United States and Europe about China’s growing trade surplus, authorities here have removed incentives that once favored exporters of cheap goods.

Starting last June, for instance, China removed or reduced tax rebates on hundreds of items for export, including toys, apparel, leather, wood and other goods, effectively taxing those industries...

[M]any Chinese exporters say the timing of the rebate cut was disastrous. Their factories had been struggling to cope with problems that included power shortages, higher raw material costs, rising wages and inflation in other areas.

Many Chinese factory owners say a tough new labor law, which went into effect on Jan. 1, complicates the hiring and firing process and threatens to raise labor costs even more, at a time when parts of the country are already plagued with labor shortages. Some factory owners say there have already been strikes and other turmoil over the interpretation of the new law and how it should be applied [i.e., factory owners are trying to ignore the law and workers aren't too happy].

“We have seen lots of brawls between employees and employers,” said Hong Jiasheng, vice president of the Taiwan Merchant Association, which represents investors in China. “We think the enactment of the new labor law is too hasty.”

Analysts say Beijing is also stepping up its enforcement of environmental laws, putting added pressure on factories that had long skirted regulations. Adhering to those often ignored rules increases cost, too.

These changes take place against the backdrop of a dollar falling modestly against the Chinese currency. The dollar is down about 7.6 percent in the last year against the yuan and is expected to fall further this year.

The weaker the dollar, the more expensive Chinese and other goods become when their prices are converted to dollars...

To reduce costs, some factory owners are considering moving to inland China, where wages are lower, or to other parts of Asia, like Vietnam and Indonesia.

So no, those American manufacturing jobs are not coming back (although high oil prices could raise transport costs and keep things like car manufacturing here in the U.S., but that's a different story).

But the "cheap China" story appears to be over. That had to happen sometime; iron laws of economics say that wages have to go up as an economy gets richer, so low-cost exporting gets less and less bang for the buck. Chinese manufacturing will now have to move into more expensive, high-tech products - cars, computers, cameras, etc.

Which means that, after a brief pause, the "China takes over the world" story will be back in full force. Only this time, Chinese companies will be competing directly with our big guns, the way Japanese companies did in the 80s. And all the while, China will get richer and richer; their economy is all but certain to be larger than ours sometime in the upcoming decade.