Made in China Remade

Rising labor costs and the global financial crisis have wiped out huge swaths of China's export manufacturing base. But that could be a blessing in disguise for China, as market consolidation leads to the emergence of larger firms that, by investing more in product innovation and design, move the economy up the value chain.

SHANGHAI – “It’s a dying business,” said the owner of a garment factory I met in Zhuhai, a city in Guangdong province. Like many in his line of business, he is packing up. Lured by abundant cheap labor, investors flooded to Zhuhai two decades ago. Gone, it seems, is the heyday of T-shirts, toys, plastic flowers, tiles, hooks, springs, and the like. Today, the costs of manufacturing such items are lower in countries like Bangladesh and Vietnam than in Guangdong.

As labor costs continue to climb, is China set to lose its coveted spot as the world’s workshop?

Rising labor costs are inevitable. China’s government introduced tough labor laws and a minimum wage in 2008. Recent policies to improve rural economic conditions have slowed the flow of migrants from the countryside. Workers are demanding higher compensation to match the fast-rising cost of living in China’s cities, as manifested in an ongoing and high-profile labor strike at a Honda plant based in Guangdong. Salary was the major point of contention.

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