A Chinese friend in the commercial real estate industry told me how her company’s plans to cash in on Hangzhou’s repute as a services outsourcing depot for the Shanghai financial industry has taken a turn. Hangzhou’s economy as a popular tourist destination has become nearly as pricey as Shanghai’s, she told me. The cost of labor has risen accordingly, making Hangzhou increasingly expensive for the sorts of routine back-office service functions the sector can handle well: a lot of repetitive keying in of paperwork into computer systems, mostly. Meanwhile, the global financial downturn has taken a hit on Shanghai’s financial industry resulting in headcount reductions at many companies.

Though it seems only the more basic of services outsourcing offerings in Hangzhou may have been priced out of the market, there is still a plethora of offerings to be made, with higher-value adds. Still, China’s stab at the global services outsourcing may be severely curtailed if the costs of doing business in the cities with the talent continue to climb.