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No more cheap Chinese goods?

June 15, 2012, 4:57 PM UTC

FORTUNE — China has long been known as the world’s factory because of its seemingly endless supply of cheap workers, who churn out everything from shoes to toys to iPads. While low wages certainly helped the East Asian giant become the world’s second largest economy, China’s labor economics are changing rapidly.

In The End of Cheap China, Shaun Rein starts with the familiar premise that rising Chinese incomes could end cheap consumption for Americans and disrupt global supply chains. He then asserts that rising economic optimism in China will drive higher standards of living. Chinese workers will demand higher wages, while consumers will want higher quality goods.

Chinese consumers have good reason to feel good about their prospects. Unlike the China of the 1990s, job opportunities are plentiful today, particularly for young urbanites. Rein paints an especially hopeful view of modern Chinese women, possibly the most optimistic segment of the Chinese population. Today women generate more than half of all household income in China, up from only 20% in the 1950s. As a result, Chinese women have emerged as an attractive market for Western consumer companies.

Rein knows Chinese consumers well. He is managing director of Shanghai-based China Market Research Group, which advises corporate clients such as Apple (AAPL), DuPont (DD) and Kentucky Fried Chicken on Chinese tastes. Much of the book, which was written in only three months, borrows from Rein’s years in the field interviewing everyone from Chinese executives and billionaires to migrant workers and prostitutes. Rein masterfully captures where they’ve been and where they dream of going as China becomes the world’s biggest economy.

The book is dotted with useful case studies for Westerners interested in doing business in China. However, Rein’s optimistic argument relies more on personal anecdotes than economic analysis to tell the story of a much more hopeful Chinese society, especially compared to the dark days of the Cultural Revolution in the 1960s and 1970s.

Rein can seem overly optimistic at times, although he draws some attention to government corruption and the need to improve the country’s health care and education systems. The truth is that China’s economy is still largely driven by exports. Consumers save way more than they spend partly because China lacks an adequate social safety net. Chinese policymakers are trying to rebalance the economy, but there’s a long road ahead.

Nevertheless, Cheap China is an excellent read for anyone interested in the economic prospects of an emerging superpower.

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