April 03, 2006

The end of cheap labor in China

David Barboza's article in today's New York Times begins:

"Persistent labor shortages at hundreds of Chinese factories have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods."

He's right. Read the article to see why the expansion of China as a low cost manufacturing base is starting to do what all expansion efforts eventually do - slow down. In Bigger Isn't Always Better I discussed the transitory nature of the feared "China price" and how currency valuation changes, labor shortages and increased social unrest would drive it northward.

There is an upside to all this. As China follows the paths of Japan and Korea from low-end to high-end industry, options will open for better working conditions, more equal wealth distribution, and development of its huge internal market. Whether the options are seized depends on how wise China's rulers are about managing their next great leap forward.


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