Fortune | August 2015

Relocating might not make sense. But doubling down on China might not, either.

By David Z. Morris

In the past few weeks, the world has been clearly alerted to the many ills of the Chinese economy. But China watchers have been eyeing one worrisome strain for years—labor. The low labor costs that fueled Chinese growth have more than quadrupled since 2006, and labor unrest has also been growing.

That has led some manufacturers, following the same logic that brought them to China in the first place, to move towards still-lower labor cost countries, like Bangladesh and Laos. More surprising, the Boston Consulting Group found in 2014 that more than 50% of manufacturing executives were at least considering shifting manufacturing back to the U.S., whose low-wage regions BCG projects to move within 10 to 15% of cost parity with China, while allowing for better service of the American market.

It’s widely believed that the recent devaluation of the yuan was a move to keep costs down for international producers.

“They’re trying to make sure they don’t have a mass exodus,” says Mickey North Rizza, VP at BravoSolution. “That’s only going to be controlled for so long.”

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