The end of cheap goods?

The article I read was from The Economist and it was titled “The end of cheap goods? Some are predicting the end of the cheap “China price”; others are more sanguine”. This article is about the prices of goods and labor in China. Li & Fung is a large exporter of goods to the United States and Europe; about four percent of China’s exports to the United States are through Li & Fung. The CEO of Li & Fung, Bruce Rockowitz, feels as though the cheap prices associated with goods and labor in China is drawing to a close. He states that China was able to produce these commodities so cheaply was due to the death of former leader, Mao Zedong, and the unification of the country again. With the re-opening of southern China companies were able to come in and obtain land and labor at relatively no cost. Due to these low costs of production and close proximity to Hong Kong, a very large port for the exporting of goods around the world, production and exporting were made very simple. The article goes on to discuss an electronics fair and a graph on how the prices of electronics are falling. The article finishes with the quote “Chinese firms were curious about any product that lowered costs or made it easier to automate. When labor was cheap, Chinese firms used it inefficiently. Now they are learning how to get more from fewer hands.” My critique is that I would agree with the idea that the “cheap prices” in China are drawing to an end, of Mr. Rockowitz. Using what we learned in class we saw that a shift in demand causes a shift in prices. In the article they mention that there is “a wave of new demand, especially from China itself” and it “is feeding a surge in commodity prices”. Also they mention that the wages in China are increasing, which is most likely the cause of this increase in demand in China. Finally, with the increase in wages the Chinese will probably replace inferior goods with normal and even luxury goods.

http://www.economist.com/node/18805862