China Herald: China stops subsidizing European and US economies

Low wages in the world's factory floor China have been for decades a deflationary force in the global economy. But as labor costs rise in China, developed countries can no longer count on getting cheap products, tells business analyst Shaun Rein in Global Sources. "China will focus on high value-added products.

Shaun Rein:

For the last several decades, China has been a deflationary force on the global economy. That is about to change as wages and rents in China continue to grow annually in the double digits despite the weakening Chinese economy.

Since China entered the WTO, tens of millions of Chinese workers have been willing to toil for low wages making the products the rest of the world loves like Nike Air Jordans and Apple phones for cheap prices. This has allowed middle class Americans and Europeans to enjoy an increase in standard of living unparalleled in history – the typical American bought three pairs of shoes annually in the 1950s but now buys eight pairs.

Now that wages and rents are rising, China is going to become an inflationary force on the global economy. In 2011, imports into the US from China rose 2.6 percent, the highest on record. Meg Whittman, CEO of HP, said HP might raise prices to the end-consumer in the US because of rising wages in China.

Instead of being the place to make cheap products, China is fast becoming the place to make high value-added products, and emerging to become the market to sell into. Consumers in China bought almost $23 billion of Apple products last year – they have changed from not just making Apple products but are also buying them now.

Much more in Global Sources.