The End of Cheap Chinese Goods

What’s the Latest Development?

Wages in China are rising and there is international pressure for its currency to appreciate in value. William Fung, the managing director of one of the world’s biggest manufacturing-outsourcing companies, expects that wages in China will increase by 80% over the next five years. Rising wages are supported by the government in part to address labor unrest, but also as a way to boost domestic consumption and reduce reliance on exports to expand the economy. While Chinese companies are trying to offset wage increases by exporting labor to Bangladesh, matching the heyday of cheap Chinese labor may prove impossible. 

What’s the Big Idea?

In order to adapt to rising wages in China and the appreciation of its yuan, the West’s consumption habits are set to make a change in course. The days of China’s cheap and endless labor supply, while not over by any means, are beginning to change, and imagining a time when they will cease to exist is now possible for the first time. Accompanying the drop in availability of cheap Chinese goods will be a rise in purchasing power among its burgeoning middle class. While Chinese businesses will try to offset wage increases, any attempt to return to the heyday of inexhaustible labor seems futile.