China enjoyed unprecedented success attracting manufacturing business from all around the world in the last 20 years. Most products in any supermarket feature the iconic and sometimes ridiculed Made in China signature. Some associate it with bad quality, others with the tragedy of offshore manufacturing that is killing jobs in North America and everywhere else in the world.
To be fair this is what happens in free markets. Cheap labour and the efficiencies of mass scale production generated an environment where products can be made at a lower cost. People all around the world enjoyed and directly benefited from this process by being able to buy the same or similar products at a lower cost.
But this trend will not last forever. The only constant is change. China will have to prepare for a massive shift of manufacturing away from them. I argue that within 5 years the growth in manufacturing in China will top out. There are at least 4 main reasons for this.
1. Growing wages
The average wage in China has been growing at an amazing average of 14% per year for the last 10 years. It's expected to grow further for the next 5 years. The standard of life have risen fast from abject poverty to close to international standard wages of over $1,000 per month. Soon the average worker in China will be paid roughly as much as an equally well trained person anywhere else in the Western world. If adjusted for living expenses in some areas this already happened.
China is also slowly implementing laws that protect workers in various ways, reducing the risk of human tragedies but increasing the cost of human labor for manufacturers.
As wages rise Chinese workers become less attractive to business.
There is a growing trend of using more and more reprogrammable robots in manufacturing that can do many different tasks with high precision. See the video about the Tesla factory in California below. Currently the price of such robots is still prohibitively expensive compared to humans, but it's dropping fast. Within a few years it will be cheaper to buy a robot to do a fairly complex task than employing a person for the same job.
As robots replace people in factories there will be less reason to have manufacturing done in China.
3. 3D Printing
Additive manufacturing is reaching a stage where it can start to take over traditional manufacturing methods. Today every auto manufacturer uses 3D printing and the technology is now moving into aerospace. Watch CNN's presentation on how 3D printing is changing the world and 3D Prints of the World for the amazing number of uses the technology already has.
With 3D printing you can create complexities and efficiencies in material use that were impossible with traditional production methods so far. Printing objects on location cuts out the cost of transportation, packaging and retail operations. Most importantly, a custom 3D printed product made for your specific needs will bring you more value.
These three factors of 3D printing together will further diminish the traditional efficiencies of giant Chinese factories.
There is a growing trend among Westerners demanding locally produced goods. The reasons behind such movements are disputable. If you take everything into consideration many times off-shore production is better for the environment and people in general. But nationalism doesn't have to be rational. Tribalism is an ancient and strong instinct inside us that benefited us for hundreds of thousands of years. For marketing purposes it's enough if we feel better about using and buying our own products and services.
Companies are catching up with the demand. Food and car manufacturers were the first to use nationalism to sell their products. Lately even technology companies like Apple and Google are marketing their products as Made in USA to generate more goodwill and sales. See the Apple brand video titled 'Our Signature' below.
This trend is going to continue for some time and puts and extra pressure on Chinese manufacturing.
The recent quick growth of China and other Asian nations is a good thing in every way. It levelled the playing field globally. It brought well-being to Asia and it created new previously non-existent markets for Western brands. Some of the manufacturing will come back to the West and it will be dominated by 3D printing and robotics.
Technological change will force China to face slowing growth in manufacturing. But Chinese people work hard and smart. They will figure out how to generate value outside of mass scale production. They will start competing in knowledge industries. The Chinese economy will grow no matter what happens in manufacturing. China will become the most dominant player in the world economy within just years. Watch the TED by Eric X. Li talk below.
China will exert more cultural influence than ever on the West because it will not be about cheap products anymore. It's a good time to learn the Chinese language and Chinese philosophies (especially Confucianism and Daoism) as the understanding of China will give you an edge no matter what you do.