It's not (just) about cheap labor. The sheer density of resources and knowledge in Shenzhen is just insane.

Manufacturing at small to medium scales is so heavily determined by small blockers/latencies. Missing some component, or need a modified PCB? In the US or Europe you'd be happy to find a replacement within a week, or more likely have to wait a month for it to come from China. In Shenzhen you can probably walk 2km and pick it up yourself in under an hour.