Stephan Greif, Demag Vice President-China and CEO of Demag Ningbo, compared the year of 2009 with the experience of bungee jumping. "The first six months was free fall and the second six months was booming," he wrote in the company's latest monthly newsletter.

Although the overall annual performance ended up being "quite normal," it took some extraordinary effort to make it happen. Greif said it wasn't easy to balance production capacity, inventory and cash flow.

He said Demag Ningbo strengthened its capacity in the past year and is launching four new machine models (420-ton, 500-ton, 650-ton, and 800-ton) in 2010, the Year of Tiger.

Greif also emphasized that low-end production will soon come to an end in China, after discovering that the average salary in Southeast Asia is lower than China. "Medium and high-tech products are the future!" he noted.

After reading Greif's note, I fully agree that China's cost hike will continue, especially as experts warning about inflation crawling up in 2010. Meantime, pressure from the outside for China to inflate its currency also keeps intensifying. All these factors will inevitably lessen China's cost advantage, compared to other developing countries.

On the flip side, it could also mean that Chinese consumers and businesses now have stronger purchasing power to shop for higher-end products. Obviously, this growing market section is sought after by both multinational firms and relatively more advanced local manufacturers. Therefore, the potential is growing, so is the competition.