Yes China economy is changing, it is upgrading.

Tax rebate and labor law modification are two leading factors.

1) Tax rebate
As china have promised when it entry into WTO, the tax rebate have been reduced year by year(it is like subsidiary). So it is a huge challenge for those labor-intensive companies. As we might know, the profit for industry like textile is 5-10%(factor in the 13% tax rebate), if tax rebate drop from 13% to 11%(in 2006) and RMB appreciate for 15% and the trend is still going on, plus the labor cost increase. You can image what happened in textile industry in China.

2) labor law modification
New labor contract law emphasis on labor’s right and welfare, the cost of labor is increasing(it should be).

3) I think the third biggest factor(maybe the biggest factor) is currency appreciation. RMB TO USD conversion rate drop from 8.28:1 to 8:1, now it is 6.9:1.

But China will go on developing:
1) the labor is still cheap overall.
2) domestic demand is increasing
3) high-tech and service exportation is booming.

Regards,
Steven