China: Labor Unrest, Inflation, and the Restructuring Challenge

Creeping wage inflation has returned to China following local governments' measures to increase minimum wage levels, companies' attempts to attract workers in areas with labor shortages, and in recent conspicuous cases, to appease striking workers. Rising wages are inevitable as the country's economy grows rapidly and prices rise. But China's powerful manufacturing sector is founded on its large supply of cheap labor, and if the cost of this labor increases, it will hit the profitability of low-end manufacturers — causing changes in the overall economic structure. This is, of course, what Beijing wants to do. Still, domestic restructuring is easier said than done, and entails risks to society that Beijing will strive to contain.