ChinaLawBlog links to an article from FinanceAsia titled “China: Factory to the World”, which reflects glowingly on China’s success as a manufacturing/export economy.

China’s importance as the manufacturing center of the world should not be understated. However, there are a number of cautioning signs that indicate China is not all its cracked up to be, some of which this article touches on briefly but glosses over, in my opinion.

1. Logistics costs in China are extraordinarily high, reducing the cost advantage in sourcing from China.
While the government is indeed taking steps to improve the situation, it is extremely doubtful that such improvements can keep up with the fast pace of growth.

2. Manufacturing costs are on the rise.

3. Increasing costs are pushing manufacturing to cheaper inland cities and regions.
While this is a good sign for China’s inland cities and less developed regions, the move inland will only increase logistics costs as goods will have to travel further to the ports.

4. Transportation costs and transit times from China are comparatively higher.
Thanks to the imbalance in China-trade, inbound transportation costs remain high as capacity is tight. Port congestion and insufficient logistics infrastructure at destination ports in the U.S. and Europe only increase costs and transit time as it takes longer to process containers.

5. Foreign direct investment is slowing.

6. China’s economy is overly dependent on exports.
Exports account for roughly 1/3 of China’s gross domestic product. Any weakening in demand from the U.S. or the EU – China’s two biggest customers – could significantly damage China’s economy. In addition, the government has been trying to fend off inflation and prevent out of control growth by raising interest rates and ordering banks to increase reserves.

7. China has a complicated and ever changing regulatory landscape.

These are just some of the factors that have a number of companies and experts questioning the wisdom of sourcing from China. Indeed, as some of the posts and articles in the links above point out, some business is already moving away from China to lower cost and/or more stable environments, as well as to improve supply chain reliability and efficiency.

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