Are the days of cheap Chinese manufacturing coming to an end? Economy roundup

China’s low cost, high volume manufacturing base has revolutionised Australia’s – and the world’s – economy over the past two decades, but signs of change could now be emerging.

China’s low cost, high volume manufacturing base has revolutionised Australia’s – and the world’s – economy over the past two decades, but signs of change could now be emerging.

Slowly but surely, China’s economy is changing. Wages are slowly creeping up, input prices are increasing, and more recently higher fuel and currency values are driving up costs.

Given the incredibly price sensitive context that China’s export manufacturers work in, it is no surprise that these rising costs are driving some firms to the wall.

According to The Australian Financial Review, factories are now being closed in parts of China, with one trade association forecasting that as many as 20,000 of the 65,000 factories in Guangdong province could go broke in 2008.

Quite apart from the significant upheaval that could trigger for the Chinese economy – 20,000 factory closures means a lot of lost jobs – it could have a big impact on the many Australian businesses that rely on imports from the north.

More significantly, it could also mean less demand for the high cost commodity inputs that Australia produces, an event that could send shockwaves through our economy if sufficiently serious.

On the markets today, share traders appear to have a bit of a hangover after yesterday’s big gains. The S&P/ASX200’s 3.54% gain was its biggest single-day gain since 25 March, but by 12.20pm today it had fallen 1% on yesterday’s close to be back below the 5000 point mark.

The Australian dollar has also fallen slightly today, but at 12.20pm remains relatively strong at US97.55c.