The IHT reports:

The teddy bears selling for US$1.40 in Shanghai's IKEA store may be just about the cheapest in town, but they're not made in China — they're stitched and stuffed in Indonesia.

The fluffy brown toys reflect a new challenge for China: Its huge economy, which has long offered some of the world's lowest manufacturing costs, is losing its claim on cheapness as factories get squeezed by rising prices for energy, materials and labor.

Those expenses, plus higher taxes and stricter enforcement of labor and environmental standards, are causing some manufacturers to leave for lower-cost markets such as Vietnam, Indonesia and India.

"It's true that we are facing difficulties regarding increased costs in China," said Linda Xu, public relations manager in China for Swedish retailer IKEA.

Though the competition for lower prices is not new, "we are constantly having to compete with other countries and suppliers," she said.

While costs in China are rising nationwide, the greatest pain is being felt in the south, where about 14,000 out of the 50,000 to 60,000 Hong Kong-run factories could close in the next few months, said Polly Ko of the Economic and Trade Office in Guangdong, which neighbors Hong Kong.

To read more:

http://www.iht.com/articles/ap/2008/02/22/business/AS-FEA-FIN-China-Losing-Competitiveness.php