Four months ago I wrote a post entitled “End of the China Price” which noted that China’s inflation rate, plus the depreciation of the yuan, was making it harder for Chinese companies to undercut American manufacturers’ prices. Today the Wall Street Journal is saying the same thing (subscription required).
In addition to rising inflation and the falling yuan, the Journal mentions tighter labor regulations. I’ve also heard that middle managers are in short supply. Entrepreneurs can still find plenty of cheap labor (especially in rural areas), but they have trouble finding folks to delegate management responsibilities to. Taxes are on the rise as well, more through enforcement than through rising tax rates. And don’t forget new costs (which always should have been spent) to monitor product quality.
China is not going away. It’s not a flash in the pan. But the great shift of manufacturing from America to China will slow significantly in the coming years.
Business strategy for China: it’s still a major competitive threat, but here’s what’s new:
- it’s pricing is no longer unbeatable
- there’s more business in the local market–selling to the Chinese–than ever before.