We decided to do all of our prototyping and short runs in the valley. You're risking your company's failure if you wait around for months dealing with logistics in China for each design iteration.
PCB manufacturing and assembly is one part of the equation.
The other important thing that we are missing out on (by not being wired into the whole Shenzhen scene) is the hardware that they have. The kind of chips they are using are not even available to us but are cheaper and better by an order of magnitude.
We are talking about 35$ computers, whereas they are using 12$ phones. All of this comes under the Gongkai method of 'innovation'.