An entry on Venture Blog, found while reading EirePreneur entry.

The human hair story itself is interesting, but will be just a very rare example of beating China in terms of cost. The closer you make the cost to zero, the more you are likely to beat them. Guess this won’t be listed in the next Harvard Business School case study.
I think if people try to get into price war against China, there will be no winner in the long end. In order to lower the cost you have to put a lot of jobs offshore (put factories in China?), tons of layoffs will be followed. The remaining employees are forced with an incredibly long hour of labor and with fear of losing their job, they have no choice other than sticking with the current position and make their hands very, very dirty.
Once the company lower the price bar, they cannot raise it again for most of the time and often it is too late when the top management realize they got stuck in the wrong direction. These unhappy employees are also the consumers who are willing to pay even less. There are always some people who outsmarts others by upgrading their skills constantly, migrate their working habits into their personal life without losing balance, and never letting anybody wipe the smile off their face. Magazines and newspapers bloat the numbers of those and try to let people fantasize about being like them, but the harsh reality is there won’t be much of them and that kind of lifestyle is clearly not for everybody.
So, do people in China get happy in return? To some degree yes, by having more money and buying more goods, and they will get a tweaked confidence in their lifestyle (long hour labor in a cheap environment) by the fact that they can compete with foreigners, but hey, that’s exactly what Japan had done in the past 50 years. Work hard, steal jobs from the United States and Europe, spend the money on cars, steros, houses, cloths, and Louis Vitton bags. So are we happy now? Probably I am simplifying things, but still something tells me fighting directly against China will do harm to both parties.

Last, I think the real strength of China lies not only in their cost-effective production capability, but also in the number of extemelly talented people and the connection they have. Every Chinese person I have met so far is intelligent, energetic, and has very practical way of thinking (the last one seem to apply to every other Chinese as well). And consider their power in Silicon Valley, South East Asia, …. Soon we will realize what they are superior than us and at that time, as usual, it might be too late for most people.
I think the “experts” who try to focus on China’s cheap labor are actually trying to live in a dream world in which “developed” countries can always manage things in the long end.