With the latest round of wage hikes in Guangdong, it seems to be payback time for the 23 million migrant workers who have toiled for decades to earn the province the sobriquet of "the world's factory."

Minimum wages rose by an average of 18 percent today, the biggest jump since Guangdong introduced the minimum-wage system in 1994. The provincial capital, Guangzhou, saw a 17 percent increase to 780 yuan (US$98) a month, while Shenzhen registered a rise of well over 20 percent to 810 yuan (US$102).

The tens of millions of low-income workers have obviously welcomed the pay rise, but the exercise has unsettled many factory owners, especially those in labor-intensive industries such as toys, garments, plastics and electrical appliances.

Many of them are considering relocating their operations to far-flung regions of the province in search of labor cheap enough for them to stay competitive in a market glutted with low-end products.

This raises the question: Are Chinese workers becoming too expensive for investors to bear?

The reality is hardly so. Take, for example, Shenzhen's new minimum wage rate of 810 yuan, the highest in China. Suppose workers toil an average of eight hours a day, six days a week. That comes to an hourly rate of 4.21 yuan (US$0.52) when the average market rate in neighboring Hong Kong is HK$23.50 (US$3).

But the chances of migrant laborers working only eight hours a day and six days a week are lower than those of spotting a giant panda in the wild. Many work an average of 10 hours a day, seven days a week in hazardous conditions with no overtime pay. A word that possibly best describes the state of affairs in many of Guangdong's factories is "sweatshop."

Although China's gross domestic product (GDP) has increased manyfold over the past 30 years or so, the country's average pay level has not kept pace with it. It is about 20 times less than that of the US and 24 times lower than Japan's.

In the manufacturing sector, the cost of labor is 10 percent cheaper than in India, which took its first steps towards a market economy only in the 1990s.

In a globalized economy, nations take different approaches to stay competitive. Some choose to boost productivity by spending heavily on technology and education and simultaneously try to improve the wellbeing of their working population. Others opt to maintain a competitive edge in pricing by keeping wages low and harming the environment.

It's a battle between economies driven by perspiration and those propelled by inspiration, in which the latter will emerge as the winners. That is for sure.

This round of pay rises in Guangdong may squeeze out a few small players and erase some job opportunities. But if those factories can only survive on cheap labor, then let the law of survival of the fittest apply. The province, and the country at large, has had too many production lines for low-end products, and for too long. In the long run, such wage hikes will help attract a higher-quality workforce to boost product value and the service industries, and bring the province closer to its dream of becoming "the world's innovation hub."

The more important policy implications of such pay rises concern the government's keenness to play a bigger role in helping better distribute the nation's wealth and bridge the widening gap between the haves and have-nots, a factor that has become increasingly disruptive in the country's course to building a harmonious society.

(China Daily September 1, 2006)