The Economist has an interesting article this week on comparative advantage as it relates to manufacturing. It is worth the read.
I agree with the central theme going through this article that the cost of manufacturing labour is becoming less of a factor in determining where to locate a manufacturing operation. More important factors include linkages with upstream and downstream elements of the value chain as well as time to market. While I acknowledge that the manufacturing clusters in China are impressive in their capabilities, they still suffer from two big problems, namely time to market and connection with design teams that can understand developed western markets.
In the long term, the solution for China is to stimulate its domestic market demand and create a mass market in their home market. That shift will require a significant re-think away from focusing on exports as the source of wealth production and instead looking at the domestic market as its driver.
