A recent report issued by the Pudong Innovation Research in Shanghai has shown an increase in labor costs in China of 9% over the last year.

The increase in labor costs is now a constant phenomenon in recent years, and is forcing foreign investors to move their production outside of China, to the benefit of other Countries in Southeast Asia such as Vietnam or Cambodia.

The increase shown by the research of Pudong Innovation Reasearch Institute is about 88,532 yuan ($ 12,890) per employee. It is expected that the increase in labor costs will continue to rise up in coming years due to the slowdown in domestic economic growth, as well as for the effect of the new regulations of the labor market which, while on one side could improve the conditions of workers, the other side will help to increase more pressure on employers. To make matters worse are also local governments, which require companies to increase the minimum wages; the report in fact suggests to slow down the increase in minimum wages in order to allow even the smallest businesses to hire skilled workers.

At the moment, the city where the highest increase in labor costs is registered is Chengdu, capital of Sichuan province in southwest China, where it is expected that the annual increase to be around 14.08%, while in cities like Beijing and Shanghai the increases will be above 10%.

The rising cost of labor costs, however, if on the one hand could also be read as an alarming news, must instead lead to a reflection of diametrically opposite sign. In fact, the increase of salaries contributes decisively to create the so called middle class, which is the backbone of the Western consumer economy. Upon the increase of the wage levels, in fact, there will be more and more Chinese citizens who will act as consumers in markets at the moment inaccessible to them, such as that of consumer electronics, automobiles, real estate properties, travels. Citizens who earn more also will require increasingly efficient public services, and increased tax revenues will help to raise the level of basic services such as health and education, as well as to an improvement of the infrastructure systems.

In other words, if the increase in labor costs is likely to alienate some investors from China, many others will create their own businesses there relying on the growth of China's new middle class.

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