Chinese Advantage

The global outsourcing of manufacturing to China is made possible by three things.

1. Cheap labour
2. Oil prices
3. The undervalued Yuan

Despite the added transportation costs, it is still cheaper to produce goods in China and have them shipped over than to produce them locally. A chicken farm in California will even ship its chickens to China for processing and packaging, then have them shipped back for sale in the US! Not only is this absurd, it is unsustainable. Yet companies are frantically moving production facilities to China as if the advantage is permanent.

All three of these factors are already under pressure. As China's economy grows with strong inflationary pressures, wages will have to rise. While oil reserves dwindle, global demand for it is rising, which will inevitably raise its price. And China cannot continue to grow and compete with the world with an undervalued currency. It will eventually have to let it float.

It would appear that it won't be too long before importing from China is no longer cheaper than producing locally. What then? Are companies going to bring production home again?