Monday, December 06, 2004

Labor vs technology arbitrage

The Times business section today has special coverage on China. The piece about venture capital in China is right on the money - despite all the dynamism there I think there are better VC investments to be made in the US right now. Most opportunities in China are based on labor arbitrage, not technology innovation.

Labor arbitrage is illustrated very clearly by the two profiles, of a textile worker in Georgia, and another in a factory town north of Shanghai. With 150 million excess rural workers in China, and modern supply chains connecting factories there to US markets, how long can a 30x disparity in pay ($15 per hour vs $4 per day) persist?

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