Abstract:In recent years, labor cost is rising rapidly in China, the problem of capital outflow becomes more and more serious accordingly and the risk of the hollowing out of manufacturing industry is gradually increasing. The global comparison of labor compensation, labor productivity and unit labor cost shows that since 2011 the labor cost advantage of China is obviously weakened, on the one hand, comparing with other emerging new economy countries, China basically loses labor cost advantage and even certain reversion has happened like Indonesia and Mexico and so on, on the other hand, compared with the developed countries like the United States and European countries, although China is significantly having labor cost advantage, this kind of labor cost advantage can be weakened by other factors such as energy cost, industrial policy, tax policy and so on. The reason for the weakening of China’s labor cost advantage is that labor compensation growth rate is largely surpassing the growth of labor productivity, the rapid labor compensation growth is mainly because labor supply growth rate is lower than demand growth rate, however, skill talents shortage results in slow labor productivity growth. Chinese manufacturing industry should not win by simply using low labor cost and Chinese enterprises must change from low cost competition to high-tech competition and differentiated competition. Chinese Government should make efforts to raise birth rate and labor participation rate to effectively increase labor supply, accelerate double top-grade construction and modern vocational education development to optimize labor supply structure and deepen the reform of financial system and tax system to lower enterprise cost.