An article published by The Economist looks at the possible decline of cheaply produced Chinese goods, primarily due to the rising cost of manufacturing in China. Some people seem to believe that prices will rise inevitably and while others take a more cautious approach. It’s always important to look at both sides of the argument to form a rational opinion.
Rising Cost of Manufacturing in China
The argument is that manufacturing in China has gone through different phases:
- When China was closed off from trade, South Korea, Taiwan, and Japan were the dominant Asian manufacturers.
- After Mao’s death, the dominant Asian manufacturers opened up manufacturing in China. During this phase, labor, land, and distribution of goods were cheap.
- Now, Chinese workers are beginning to demand higher wages, and commodity prices are also driving costs up, which is increasing prices by an average of 5% a year.
- As a result, higher wages will increase prices and workers will ask for even higher wages. This makes it harder to control prices and inflation rates.
The Other Side of the Coin
- The end of cheap manufacturing could open up China to the Information Technology world. With even more Chinese electronics manufacturers producing cheaper versions of products from Apple, Google, and Amazon, we could see China start producing the next big gadget.
- The future for Chinese electronics at the current cost looks bright, but there are question marks over copyright claims, intellectual property theft, and knockoffs that have plagued a large number of Chinese made goods.