Not to mention the free ride they get for shipping resources from Africa, the Middle East and Afghanistan back home using US naval shipping lane protection and US ground forces.

The owner of Cleveland Cyclewerks says little guys can get the same level of quality from China as Apple, but you have to go to China, build relationships, and work your ass off.

I dunno.

The quality argument is a red herring. Remember when "made in Japan" was synonymous with cheap, tacky and breakable? No, you probably don't, but your parents might. China is barely 20 years into this experiment: quality control will come to the fore as the fly-by-night companies go out of business. (Of course, so will the bargain-basement prices: quality is never cheap.)

@5 you assume the market is free in China. In actual fact, half of it is owned and/or controlled by the Red Army or the Chinese Communist Party.

This subverts the normal market mechanisms that clear out chaff and the concept of Buddhist paternalism allows more inefficient companies to thrive by destroying their competition.

Can't wait until the yuan appreciates and that labor ain't so cheap anymore. That combined with oil prices will change the economics of off-shoring dramatically.

Despite the complaints of some small businesses, China clearly dominates cheap manufacturing at this time. The more pressing question is whether or not China can use the capital they gain from this to transition into a country with a middle class consumer base large enough to support the inevitable rise in wages and inflation. I see two options for China's future economy:

A) Japanese-style stagnation, as Vietnam and Brazil replace China (who itself replaced Japan, Taiwan, and Korea) as the manufacturer of cheap crap.

B) China actually attains a much higher standard of living for its rural population, pairs innovation with a powerful domestic market, and becomes a true economic powerhouse.

During the years I lived in China I was sure A was the only likely outcome. Now that I live back here in the States and I see the tremendous amount of money China is pouring into infrastructure projects like high speed rail to serve the western provinces (contrasted with our own utter lack of vision for this country), I'm actually considering B as within the realm of possibility. Except for the innovation part. There is just no culture of innovation there. There is no culture of critical thinking there. They don't even have an indigenous word for "logic"; 逻辑 (luoji) is a meaningless mishmash of characters that just sounds like the English word "logic". It's as foreign a concept as 汉堡 (hanbao - hamburger) or 汉堡 (youmo - humor).

Will@6: please explain to me how the Chinese government is going to force foreign customers to continue to pay for goods that do not meet their specifications. (Note: despite the phrasing of the previous sentence, I am not actually interested in your answer.)

@facet: I find myself vacillating between two similar viewpoints. Sadly, the information I keep stumbling upon keeps leading me back to something similar to your 'A'.

Take the high speed rail. The consensus is that it's crooked: based on a design ripped off from the Japanese, being run at unsafe speeds right now, and given the poor quality materials used to build the rails, destined for sluggish performance and failure in as little as five years.

It's the Potemkin-like nature of so much of this development that gives me pause--like that in Dubai or the Great Leap Forward. The country seems to be coated with a thick varnish of falsified durable progress, over a deep well of environmental, social and economic rot.

Don't get me wrong, the US is in plenty of trouble--particularly the racist, bigoted, ignorant, reactionary 'heartland'. But, the whole country isn't the teapeople. Our strengths are real, and a bit stronger.

China feels like it never left the 19th century--amalgamation, child labor, sweatshops and coke furnaces.

@Doctor Memory:

I'm not sure if you read the entire Ars article to which I linked. It was a very fair-minded piece, talking to a variety of suppliers. Most said a similar story: They developed good relationships, worked hard to maintain them--just as you suggested.

The problem has arisen as the coastal wages have increased, and jobs are subcontracted to the interior--with which the stateside companies have no relationship. The motivation--and possibility the ability--to manufacture well seems to be lost with the subcontracting.

Then there is the problem of receiving sub-standard goods. One can refuse to pay, but by the time you can recontract and get replacements, the market has probably left you behind. With rising shipping costs, particularly air shipping costs, this is a non-trivial problem.

@11 Golob: All very good points. I vacillate between the two projections as well. I don't know about the 19th century - I think China resembles America in the 50s more than anything else. Clearly there are political differences between the two, but in China today income and standard of living are rising rapidly, nationalism is on the rise, respect for authority is almost inherent, "progress" has no negative connotations, environmental concerns barely percolate to the surface, and the people generally have faith in the central government. I hope the Chinese version of the hippies comes soon to expose the "deep well of environmental, social and economic rot".

@7 actually, the Yuan is going up right now. It's the oil-based economy and overheating sinking the Chinese US-backed Ship of State.

@10 again, I pointed out that the premise of competition was incorrect. Trying to avoid the true statement that the Red Army or the Chinese Communist Party literally OWNS at least half of all the corporations in China won't make that unpleasant reality go away, no matter how many Tea Bagger Libertarian fake arguments you throw at me.

Go read Adam Smith's Wealth of Nations - the whole thing, all of the books. Not just the popular three.

@12, The thing is, that has actually been an issue for along time. many factories in China are operated by Taiwanese, Korean, or Hong Kong middlemen, many of whom got their start manufacturing in those countries (yes, HK isn't technically a country but still). The manufacturers started subcontracting to the Chinese mainland. Now American companies have caught on and are developing direct relationships with Chinese companies, but by now manufacturing is moving inland. Companies who want to avoid going through middlemen need to establish actual suppliers, and build strong enough relationships with them that you can trust them not to subcontract out.

One problem for Western companies is that they seem to operate on the principle that if they're going to offshore, there's nothing important other than keeping costs rock-bottom. Software and game companies would rather hire high school dropouts for coding farms than try and recruit Chinese college grads with software knowledge, because while either group would receive significantly cheaper wages than American/Canadian/European employees, China is seen only as a source of the cheapest possible labor. And then their code comes back all buggy and they complain that the Chinese are just terrible programmers. Or companies will place manufacturing orders that they know can't be produced safely at the cost and on the schedule they demand, and then throw up their hands in shock and horror when the products come in poisoned or broken.

I think that some of these companies are willfully ignorant of what goes on in their factories, and that others just feel the need to jump on the offshoring bandwagon without seriously considering the trade-offs. If you want to have reliable manufacturing in the PRC, you really do need a well-established network of connections and the respect of your business partners. You should probably have people in your company who are fluent in both Chinese and English and understand the different business practices of both countries, not just translators, but people who are part of your company and understand the business and your company's priorities. That costs money. Shipping stuff around the world costs money. Regularly inspecting factories costs money, and it costs a lot more if those factories are on the other side of the Pacific. In this respect, I agree with the Ars Technica article: offshoring is not always the best choice for small and medium-sized companies, even if the costs initially seem lower. But I wouldn't frame it the same way they did, making it about the problems of Chinese companies.

This is not to defend China, mind you. The PRC has some serious problems of its own, including some tremendous bureaucratic barriers for domestic businesses, some amazing corruption, pollution, and social unrest. There is a lot of shoddy construction, both in a grand scale and on a smaller scale (oh, the terrible bikes I used to ride). The education system is pretty terrible, focusing on rote memorization and standardized testing that does not prepare students well for higher education. Plagiarism is also a problem, and is even more widespread there than in the US. But on the other hand, some of the infrastructure investments have been good-- the regular rail is quite functional, and the public transit in major cities tends to be amazing compared to Seattle, Chicago, Atlanta, Boston, San Francisco, and even New York. And for all their many, many (so many) problems, the CCP has shown a willingness to experiment with a variety of difference economic, social, and political models on a local scale. I get the impression that some of their elder statesmen paid close attention to what happened to the USSR, and are more serious about long-term stability, even if only to keep themselves in power. And many of the up-and-coming people in the party hierarchy are on the more progressive side, which is promising.

I tend to think that China is neither going to rise up and swallow us whole, nor collapse in on itself immediately. What we will most likely see is gradual change over the next few decades. I am hoping that the general trend is towards greater stability and well-being. But I admit that it could go either way.

Wow that was long. Sorry about that.

@facet

I'm going to assume you're kidding about the loan-word origin of 逻辑 and 幽默 being evidence for a Chinese lack of logic or humor. But I'm worried that your joke might not come across, what with the communication barriers of the internet and the lack of inflected speech to convey tone, and then readers will be confused.

Don't worry, readers, it isn't true! For one thing, language doesn't work like that. And facet, who seems to speak Chinese and has spent time in China couldn't possibly have never noticed the Chinese sense of humor. How could they have read 红楼梦，or 水浒传, or the 战国策, or 鲁迅, and not noticed the various examples of silliness, deadpan humor, puns, and biting sarcasm? Or when Jiang Zemin avoided the media after the US bombed the embassy in Belgrade, and a bunch of Beijing residents called the police station with missing person reports, looking for their missing friend by the name of "Jiang." 此非幽默而何？Anyway, if the Chinese don't have a cultural history of a sense of humor, then where did the word 笑 (smile, laugh) come from?

China's biggest headache is that one third of its population is in retirement age.

Most of the young people have almost nothing, and are dependent on their grandparents and parents for housing, because salaries are about $5000 a year.

That means, China is going to have a huge die-off soon because the older third are pretty much dead already, and the middle third will be dying next.

That means a monumental population implosion is about to occur. They won't have enough people to run all the stuff and they certainly won't have the time (or need) to build your dishwashers and plastic toys.

@16: Busted! Still, it's worth giggling about, isn't it? And if you want to watch a Chinese nationalist's head explode, ask them to confirm the following logical sequence:

English is an official language of Hong Kong. Hong Kong is a part of China. Therefore, English is an official language in a part of China.

Boom!

Oh yes, China's development is nothing like America's development, in that American development didn't rely on broad IP infringement in the least.

Yeah, it's hard to see how the Chinese economy can rely on manufacturing, especially when some part of it is iterated through knock-offs. But how then do countries go from backwards imitation to innovation?

The more interesting debate lies, as Jonathan alludes to, is whether the switch off manufacturing will constitute a hard landing.

Oh lord, now I'm a "tea-bagger libertarian." Well, don't I feel silly now for voting SWP all these years!

Will, I work in an industry where we all deal with the Chinese market on a regular basis. (Less relevantly, my partner worked in China.) I have no illusions about who owns and controls Chinese companies, but it's entirely beside the point: be they legitimate private enterprise or PLA fronts, they have no monopoly and cannot force foreigners to buy substandard goods. Either they will, like the Japanese and Koreans before them, bring their manufacturing standards up to par (and I expect that they will), or the business will go elsewhere.

Also, I will pay cash money for video of Will being able to accurately cite any portion of books III-V of The Wealth of Nations without resorting to wikipedia. (Note: citations must be verified correct.) Since I live in the noted tea-bagger dystopia of San Francisco, someone else will have to do the filming.

John@12: It's not that I don't think these are real problems -- they certainly are! I just think that you really have to keep the time scale in mind.

xunzi@19: America's primary development years came in an era when "intellectual property" was much less broadly defined and protected. It seems a little unfair to knock the Chinese for not choosing to play by the rules that we just made up ten years ago and which (surprise!) strongly disadvantage developing countries.

@21 One popular anecdote from the 19th century I recall is that Charles Dickens being very pissed off that American publishers were selling pirated versions of his books.

@12 Jonathan, another interesting issue facing manufacturing subcontractors is that they are rapidly facing labor shortages of "unskilled" workers, mostly migrants. Even the most thrifty of migrant workers are realizing how shit a job it is to work in the shoe industry during the holiday season. Coupled with the rise in cost of living in most factory towns in South China (e.g. Dongguan), this is one cause of migration of production inland (and to Vietnam and Bangladesh), but I think at this point producers recapture some burned out migrant with the lure of work in factories that actually obey the national labor law. Check out Leslie Chang and Alexandra Harney's work for more on this subject.