Peter Navarro has an article which decomposes China price into components. Cheap labor accounts for only 39% of China advantage.
“Chinese manufacturers have the capability to significantly undercut prices offered by foreign competitors over a wide range of products. Today, as a result of the “China Price,” China has captured over 70% of the world’s market share for DVDs and toys, more than half for bikes, cameras, shoes, and telephones; and more than a third for air conditioners, color TVs, computer monitors, luggage, and microwave ovens. It also has established dominant market positions in everything from furniture, refrigerators and washing machines to jeans and underwear. This article examines the eight major economic drivers of the China Price and provides estimates of their relative contributions to China’s manufacturing competitive advantage. Lower labor costs account for 39% of the China Price advantage. A highly efficient form of production known as “industrial network clustering” together with catalytic Foreign Direct Investment add another 16% and 3%, respectively. The remainder of the China Price advantage is driven by more mercantilist elements. Export subsides account for 17% of the advantage, an undervalued currency adds 11%, counterfeiting and piracy contribute 9%, and together, lax environmental and worker health and safety regulatory regimes add another 5%. Implications for management strategy and public policy are noted within the context of the “flight or fight” choice facing manufacturing enterprises seeking to compete with China.”
Another paper published by BLS’s Banister shows that one man-hour in manufacturing sector in China costs only 3 percent of the cost in the US. Hagel III and Brown show in their MGI article that next big leap in value added will require new business model – creation nets – and that China is very good at it.