The silver lining of wage increase

Notwithstanding all the hype over rising wages in China, it is entirely premature to declare an end to the global labor cost arbitrage that has long worked in China's favor. China remains highly competitive by international standards, and the recent round of sharp increase in wages is not likely to alter that key conclusion.

Actually, the current outbreak of increase in minimum wages is largely going according to the script of China's 2004 labor reform, which required local governments to raise minimum wages at least every other year. But circumstances changed relative to conditions prevailing at the time that reform was implemented, and the script had to be discarded - at least for a while.

In the depths of the global financial crisis in late 2008, when Chinese exports were under severe downward pressure, the government ordered a deferral of scheduled increases in minimum wages in an effort to combat mounting recessionary risks.