Story here. Looks like China may be just beginning to price itself out.
Excerpt: "China remains the most attractive destination for industrial investment in the world, drawing almost $83 billion last year. But, in a strategy that companies are calling ‘China plus one,’ multinationals – worried about soaring costs in China and about becoming overly dependent on factories in one country – are increasingly establishing or expanding bases elsewhere on the continent, particularly in Vietnam.
“The long list of worries about China includes inflation, rapidly rising labor costs, shortages of workers and energy, a strengthening currency, dwindling tax breaks for foreign investors and the possibility of civil unrest. With wages in China now rising close to 25 percent a year in dollar terms in many industries, the vaunted ‘China price’ for a growing list of goods, particularly low-tech products, is no longer such a bargain.”
Live by price, die by price. This is one of the coolest things about capitalism. Now Chinese manufacturers have to make a choice: lower their wages and risk unionizing or improve the quality of their products to justify a slightly higher cost.
One of the things about the dollar being weak and transportation costs being high - the remain manufacturing jobs that are in the U.S. look less attractive to move.
Industrialization is a cyclical process. As money comes in, the standard of living goes up, inflation hits, labor and manufacting starts costing more - but at that same time - if the country in question has been smart - infrastructure has improved and so has education so the country can move up the economic food chain.
I find this part on page 3 ironic on the part of capitalists: “‘Communism means more stability,’ Shu, the chief financial officer of Texhong, said, voicing a common view among Asian executives who make investment decisions. Democracies like those in Thailand and the Philippines have proved more vulnerable to military coups and other instability that has scared foreign investors.”
It’s making headlines now, especially since the RMB has appreciated 20% versus the dollar. However, China started having price problems about 5 years ago. The marginal players, the ones that somehow have zero cost of capital/free rent/discounted power costs/etc, are going bankrupt. Which is a good thing in the long run. It will also make China production more value added and move up the food chain. Those producers that are still profitable with the strong RMB, are going to really start posing a threat.
The MNCs I deal with went into Nam about 5 years ago as a hedge to China. Eg, what happens if China blows up? It will take too long to go from a greenfield to production in a new country, but if we have one factory and some infrastructure as a beachhead, then we can ramp up reasonably quickly if needed. After a couple of years, the MNCs discovered that the Nam production as a stand alone was economically viable and started expanding. Nam will then join the cycle/victim of it’s own success. Maybe the infrastructure can support 1,000 factories without driving up costs, but at some point wages have to go up, there’s a shortage of skilled employees, etc.
This was predicted long ago. Look for moves into economies like South America next.