Recently, suicide-plagued Foxconn, the world's largest electronics manufacturer, and strike-bothered Honda in Guangdong Province have been trying to resolve their problems by increasing workers' wages. More than 10 provinces, autonomous regions, municipalities in south China, such as Zhejiang, Fujian, Guangdong and Shanghai, also have raised their minimum wage standards by at least 10 percent. That implies that more regions are planning to follow suit. Such widespread wage hikes, some people think, may have an impact on the flow of foreign investment into China and its status as the factory of the world, and signify that the transfer of labor-intensive industries to inland areas and the end of the low-wage era.

In my opinion, however, not only have media exaggerated the wage hike but also many experts don't have a real understanding of the current economic situation in China. The recent wage increases will, of course, affect the future labor market, to a certain extent, but the impact is not as big as some media and experts perceived.

China still has a long way to go before it ends "low-wage era" (at least 10 years), because strikes by workers demanding a hike in pay and the minimum wage increases in some areas are not simply an economic problem or a market issue, but a political one. A political event may help raise wage levels, to some extent, in certain enterprises of certain areas, but it won't work throughout the country.

With regard to the current labor structure and employment status, the prominent contradiction that restricts China's economic life is that labor shortage has gripped export hubs in the coastal areas during the first half of this year, while the central and western regions have surplus labor supply. The enterprises in coastal areas have always expected to recruit workers being paid the minimum wage or less. For example, the wages for the frontline workers at Foxconn's factory in Shenzhen almost remain the same as a decade ago, while prices and cost of living are several times higher. So it is entirely not reasonable to keep the wages the same. In this case, how can some workers not demand higher wages? Also, the educational background, personal qualification, access to information, and demands of workers, wherever they come from - small cities or rural areas - are significantly different. The minimum wage increase in southeast coastal enterprises is inevitable in such a scenario, and this is also the root causes of the labor shortage earlier this year.

When the production costs, especially the labor costs, in the coastal areas rise, the eastern areas will gradually transfer its labor-intensive manufacturing industries to central and western areas. China is an integrated economy but with regional labor market disparities. In the past decade, even though the pace of urbanization is advancing, the urban-rural dual structure has not yet disappeared due to an overwhelmingly high proportion of rural population. In this case, the major problem in the current economy is still the contradictions between the unlimited labor supply and underemployment. It is impossible for enterprises to quickly increase wages, when the majority of the rural laborers scramble for the limited jobs.

The government may set minimum wage standards, but enterprises could either pay workers the lowest possible salaries or replace them by such excuses as application of advanced technologies. If it's the latter case, it is impossible for enterprises to quickly increase wages as more job opportunities will be reduced. This is especially true when some of the enterprises are moving their businesses from coastal to inland areas. Therefore, the lower the workers' qualification is, the lower the cost of hiring and the slower the wage hike.

Therefore, on the one hand, in the wake of whole industrial relocation, the government should create more jobs for workers, in the central and western regions in particular; on the other hand, it should accelerate the pace of urbanization and make a real and comprehensive reform on the hukou system (household registration), allowing more farmers to enter into the cities, thus helping reduce the absolute number of farmers. In this way, workers' welfare can be improved as their level of wages rise. On the contrary, simply relying on the government's coercive measures to raise the wages of workers would be counterproductive. Therefore, it is time for the government to comprehensively rethink the current policies and then initiate major reform in some basic systems to solve the problems in society.

The author is Director of Financial Development Department with the Institute of Finance and Banking under the Chinese Academy of Social Sciences