In the first weeks of the blog, I was typing about this situation that would be upon us (Aug 19: Interesting Chinese Article) I wrote:

Interesting to see this inflation scenario literally exploding across the country. I always find the story of China interesting because it is poised to be a world superpower on demographics alone. However, I read even 2 years ago that China is starting to become 'expensive' for manufacturers, and now companies are looking for the next cheapest place, i.e. Vietnam. Which is quite amazing. I remember all the NAFTA talk in the 90s and how companies were moving to Mexico en masse for low cost labor - $2.50 or so in US wages. Within a decade much of those factory towns are now ghost towns, as that capital moved to Asia. Can we imagine a time in 15 years when China is too expensive? It could happen. Especially with the need to add more layers of safety, what with toothpaste, dog food, lead in toys, etc etc etc.

So this has been coming to pass the past half years. The Wall Street Journal spoke about it yesterday. I've teased many times the world's multinationals will soon find Chinese making 60 cents an hour (up from 20 cents an hour) as unreasonable and run off to the next place to exploit labor - be it Vietnam, Indonesia or wherever. Aside from the strengthening yuan, minor things like "safety" or "quality control" (dog food anyone?) are obvious culprits that would force prices for Chinese goods to go up, from the time when it was a Wild Wild West atmosphere and things like safety/quality control mattered little.

• But the economy of sweater town is unraveling, providing an early sign that China's manufacturing sector may be entering middle age. At the industry's height in recent years, more than half of Honghe's 100,000 residents worked in 100 factories and 8,000 shops that knitted, dyed, packaged and shipped some 200 million sweaters a year. The local government says the enterprises brought in $650 million a year in revenue.
• Now many exporters and workshops here have shut their doors. Others, their work floors partly idle, are cutting costs. Some of the migrant workers who came here for jobs are returning home.
• Manufacturers say their profits have dwindled as they pay out more for raw materials and energy.