The photo on the left was taken two days ago by the China Daily outside the train station in Liwu, Zhejiang province–the manufacturing hub of the Yangtze Delta. Thousands of recruiters hold “help wanted” signs for factory work. It’s a good bet factory managers in this region were hoping more migrants would be getting off those trains now that Chinese New Year (CNY) has drawn to a close. Not so. As we reported in a story about workers prior to CNY and in a separate story about factory managers, conditions in China’s interior are improving and the cost of living out here on China’s Eastern seaboard is not. This formula means factories are scrambling to find workers. What will it mean for you? Treasury Secretary Tim Geithner shared some opinions about that yesterday on Capitol Hill.
Geithner told the Sentate Finance Committee that China’s record inflation is helping the US on two fronts: Although China’s been slowing down the appreciation of the Yuan, when you factor inflation into it, the Yuan is rising at 10% a year–not too bad for those worried about China’s undervalued currency. Secondly, inflation means the cost of doing business in China is higher. When companies decide where they’ll put their next plant, said Geithner, they’ll realize the playing field is shifting in our (US) direction.
Most economists would say Geithner’s correct on the first point–my dollar is not going very far these days thanks to the rising cost of…everything in china–but the idea that a higher cost of business in China will make companies realize they should return home to the United States to create more jobs is seen by many economists as wishful–almost delusional–thinking. If China’s too expensive, why not Vietnam? Bangladesh? Cambodia? These are the next workshops of the world, companies tired of the rising cost of business in China will happily go there, and some already are, as evidenced here, here, and here.