I knew this day would be coming, but it came a lot sooner than I thought. The day of cheap products made in China may be over. It seems that a series of strikes and factory shut downs initiated by employees demanding higher wages and better working conditions is sweeping China and chasing out some manufacturers and causing other to rethink their plans. Some tax preferences that China gave manufacturers to move to China expired in 2008, and with rising wage combined with shipping costs(and time) it is starting to get more expensive to do business there than in the US. Several manufacturers have already come back to the US. Another issue is the exchange rate - as China has slowly allowed its currency to rise along with the dollar, and this has increased the cost of doing there business as well. European countries that do business in China are apparently following their American counterparts in reaccessing the viability of doing business in China because of cost increases. While Chinese workers still get just a fraction of the pay of the American worker, the cost advantage between China and America is quickly shrinking which could lead some companies to move their operation back to the states. Some Chinese manufacturers in an effort to keep business in China are moving further inland where labor remains very cheap and plentiful, but that may have some logistical issues to over come being so far away from ports.

In discussing this with my best friends yesterday, I am under no illusion that manufacturering will return to the US en mass. I think American companies will go to Vietnam, Mexico, India, Russia, though I think they are running out of cheap labor world wide. Certainly not many other countries have a cheap labor force the size of China, India certainly does not(they have a large workforce, but they are not that cheap anymore), and with corruption in Russia so rampant, Russia would also be a difficult choice. It seems to me that Mexico would be the natural beneficiary of any change in manufacturing location, at least when it comes to American Companies.

If this continues, this is going to curb China's amazing economic growth or at least dramatically slow it down. Another big issue happening in China is the country is on the verge of a real estate bust. It seems that China severely over built leading up to the Olympics, and some of its largest(and visually striking) building remain empty in Beijing and several other major cities. What is worse is a housing boom has driven prices up in Beijing to a point where only the very wealthiest can afford anything there.

It looks like China is suffering from some major growing pains that are going to affect its future for years to come.