September 30, 2010

China Shifts Away From Low-Cost Factories

This article talks about Chinese companies and their desire to reinvent their businesses. These chinese businesses fear that their low-cost manufacturing ways are becoming obsolete and they need to make adjustments. The author writes that the cause of this need for change is because of manufacturing costs rising and China wanting to create a consumer middle class. But the author doesn't show that he understands the trade-off's between low-cost manufacturing and encouraging technology growth for innovation. Economically this change is needed, yes, but how does this kind of change effect China's overall ability to stay competitive?

"The revamping of this region's industries could help reduce the nation's wide income gap and encourage more balanced and sustainable economic growth." The author fails to give an opinion about this or why these changes could be beneficial. In understanding the allocation of economic resources, the author would have better been able to tell the story of how China could benefit in this economic decision in maximizing their net benefits. Some knowledge of specialization could have strengthened the author's point on how China would benefit from producing better quality items at home to boost their economy, instead of using their resources to produce low-cost items to export to Western countries.

There is some reference to manufacturing costs rising because of previous labor shortages and worker demands for higher wages to counter rising food and property prices. The author doesn't address what China may do to rectify this issue but almost frames the whole issue as a bad idea and gives the option instead of businesses moving to even lower wage countries. Again, some idea of marginal benefit and marginal cost might be beneficial here because if the benefit doesn't weigh heavier than the cost, then why would China even be wanting a change?

This author failed to give any economic explanation for what China is doing or why they are even looking for change. There is just a bunch of summary's or what business owner's said or statistics of what they produce. Some talk about using division of labor, law or demand or changes in supply or even how they will be bringing consumers into the market would have strengthened
this article.

1 comment:

Larry Eubanks said...

I want to note that your discussion of net benefits moves your analysis into the realm of normative economics, which, of course, is something I want to avoid in this course.