SIA Article on the Rising Costs of Chinese Production

About a week ago, SIA published a really good article on why production costs in China are rising.  If you haven’t read it you can, and should, here: http://www.snowsports.org/SuppliersServiceProviders/SIANewsletter/NewsletterDetail/Contentid/1272/#top.

The article is pretty tactical in nature, and I thought a little bit of the longer term social and political perspective might be interesting to you.  It should at least convince you that this is probably not a temporary trend.

Chinese governments have always derived their legitimacy from their ability to provide stability and jobs. “Harmony,” if you will.  And when I say “always” I don’t mean a measly couple of hundred years.  The first history of China was written about 1,500 BC.  China’s current export oriented economic system is unsustainable.  The Chinese know this.  But the changes they need to make to improve domestic consumption move up the valued added chain in what they manufacture and resolve some of their significant structural issues are not conducive to that stability.

That’s a very short and very oversimplified explanation of the situation.  But the next time you hear that “everybody” knows that China is going to become the next superpower you might not rush to agree.  Could it happen?  Sure.  But remember in the 1980s when “everybody” knew Japan was going to take over the world?  Didn’t quite work out that way.  The chart below illustrates one of the issues China has.  Note the coming decrease in the working age population.