China'S Wage Increase Is Expected To Last For Many Years.

It makes people feel like the end of an era.

A series of strikes and suicides that shook China's southern manufacturing belt in the past two weeks may well indicate that China is no longer an endless supply of cheap labor.

For China's economy, this may be a good thing.

In Guangdong's manufacturing center, there are two different but related news: first, a series of suicides occurred in Foxconn (Apple) iPad tablet and other hi-tech equipment (Foxconn), and the two is a striking strike in Honda (Honda)'s zero parts factory.

These two events have also brought notable pay increases: Foxconn employees pay 30%, and Honda factories propose to raise 24% (workers ask for a pay increase of 50%).

These developments are in line with the general trend of rising wages across China.

Dai Qinlan, director of the information center of the employment service center in Wenzhou, another export center on the southeast coast, says that most local factories have risen 20% this year.

Beijing announced yesterday that it would raise the minimum wage by 20%.

"Factories in Chinese enterprises can still recruit young workers, but the manufacturers will have to pay much higher salaries," said Ge Yihao, managing director of Dragonomics, Longzhou, Beijing (Arthur Kroeber).

This is not a new phenomenon. Over the past few years, there have been reports of staff shortages in some parts of Guangdong. Wages rose before the global financial crisis hit China's export industry in the late 2008.

At the same time, China's salary level is still only 1/3 of that in Mexico and 1/4 in Brazil.

On the contrary, the message of pay increase from Guangdong this week marks a shift in the overall pattern towards labour oriented, a trend that has accelerated in recent months and is likely to continue for many years.

These raises reflect strong demographic changes because of the "one-child" policy introduced 30 years ago, which means that the number of new labour force entering the job market is declining rapidly.

Economists have said that China has touched (or is approaching) the "Lewis turning point", that is, the "pool" of surplus agricultural labor has dried up, leading to a substantial increase in industrial wages.

Cai Fang, a researcher at the Chinese Academy of Social Sciences, wrote many articles on this phenomenon. He said that the wages of Chinese migrant workers increased by 2% to 5% in the first few years of the past 10 years, an increase of about 7% during the period 2004-07, and a 16% increase last year.

At the macroeconomic level, wage inflation does bring a lot of trouble.

China has been able to achieve two digit growth in the past 10 years, but inflation is negligible, in part because the increase in wages is less than the increase in productivity.

But if wages continue to rise, the normal inflation rate may be higher, while others worry that China's economy is overheating.

Rising inflation may lead to higher interest rates, which could cause great pressure on local governments because they borrowed heavily last year to finance infrastructure projects in the stimulus package.

However, wage inflation is one of the prerequisites for Beijing's major long-term economic goals. This goal is to boost consumption and reduce dependence on exports and investment.

Increasing the income of the Chinese people is the best way to encourage them to reduce their savings and increase their spending. In some observers, this is already happening.

"At the moment, what we see in China is contrary to the impression of many people," said Li Daokui, a professor at Tsinghua University and a member of the monetary policy committee of the Central Bank of China.

"Chinese consumers are starting to spend."

Consumption boom will bring smaller external surplus, as China will import more goods from other countries in the world to push the rebalancing process of the global economy.

As long as potential inflation rises can be controlled at a low price, China will benefit greatly from higher wages.