Those uppity peasant workers: the end of the era of cheap Chinese labor.

• Author: Gong, Sasha

On a warm day in November 2004, I visited a shoe factory in Guangdong Province. Earlier that year, a riot had broken out in that factory of eight thousand employees. Thousands of workers had stormed the shop floor and the offices, smashing equipment, vehicles, cooking utensils, and whatever factory property they came across. The police soon rushed in, only to find themselves surrounded by angry workers. A police car was destroyed by the mob. Later, seventy riot leaders were arrested and ten put on trial. The youngest of the accused was a sixteen-year-old girl. The court sentenced them to up to three years in prison for destruction of property.

When I went to that factory, I asked permission of my host--the manager--to spend a full day with the workers. I wanted to stand next to them on the production lines, to eat with them in the dining hall, and to visit them in their dorms. As a former factory worker in China myself, I was pretty sure that I would be able to pick up cues unnoticed by other Western observers. And I did.

In the years following, I have visited various factories in several different parts of China, often coming in with the help of an inside contact. After talking to workers, managers, and factory owners and reading a substantial number of reports, I have concluded that the Chinese manufacturing labor force has been experiencing a major shift in recent years. Many of the advantages of cheap labor, which Chinese industry has been enjoying for the last two decades, may be diminishing. This is not to say low-cost Chinese labor will no longer exist. But a few of the key elements that have given Chinese manufacturers some crucial advantages over countries like India, Bangladesh, and Indonesia are likely to diminish soon.

To understand the origin of China's export manufacturing labor force, we must look back to the early 1980s, when China first emerged from the madness of the Mao years and strode onto the international stage with a bold marketization plan. The most enthusiastic Chinese reformers envisioned China following the export-oriented development model of the Asian dragons, aided by a steady and seemingly inexhaustible flood of cheap labor surpassing all previous human experience. A key advantage held by the Chinese authorities at the time was their monopolization of the labor market. Under a structure called the "household registration system," people had to obtain government permission to move from one place to another...