The End of Cheap China, Revised and Updated: Economic and Cultural Trends That Will Disrupt the World

POSTSCRIPT

Starting in 2007, my colleagues and I found rising labor and real estate costs were starting to pose problems for many companies relying on “cheap China” to generate profits. Many of our clients faced squeezed margins and were coming to us to plot out next steps, whether that be looking to other markets such as Vietnam or focusing on keeping operations in China and improving worker productivity. Young job applicants to my firm also started to demand higher salaries because of run-away food inflation. One applicant, who had just graduated from Shanghai’s famed Fudan University, told me she needed guaranteed salary increases to track food price hikes on top of normal salary increases.

My colleagues and I started to do research into whether cost increases were a short-term blip or if we were at the start of a dramatic change in the economy that would force companies to adjust how they viewed China. It became clear China would no longer be a cheap place to manufacture. The one-child policy meant fewer overall people reaching working age. Available workers harbored white-collar dreams and were no longer willing to work for pennies on the dollar far away from their families.

It also became clear that rising incomes and the creation of a middle class was changing consumption patterns. Chinese consumers were no longer looking for the cheapest products and services to buy. They had the money and the aspiration to buy more expensive products. Companies that could position themselves ...