While most Chinese people see a steady rise in their salary income, rising labor costs have become a controversial issue as it may weaken the country's imports and simultaneously bring hopes of expanding domestic demand.

Figures from the National Bureau of Statistics (NBS) revealed a rocketing increase in the Chinese people's annual average income from 615 yuan (74.37 US dollars) in 1978 to 14,040 (1,698 US dollars) in 2003.

Last year, the per capita annual income for farmers reached 998 yuan (120.68 US dollars), up 8.6 percent over the previous year.

The rising labor costs have posed major problems toward the Chinese economy by lifting up the production costs of manufacturers, raising the market prices of commodities, weakening the edges of export-oriented business and making China less popular in attracting foreign investment, an anonymous senior NBS statistician was quoted by Tuesday's Economic Information Daily as saying.

As salaries take up a larger proportion in the production costs of labor-intensive companies, the sectors of mining,food processing,textile, sowing, leather producing and catering will be mostly affected.

In export-oriented companies of south China's Guangdong province where about 70 percent of business require local workers to process materials supplied by foreign customers, a rising labor cost will surely put more heat on local companies who have no way to raise their export prices but to swallow a shrinking profit, said the statistician.

Such pessimistic arguments, however, do not hold water to some other experts. Xu Linqing, assistant professor of the Economy School of Jinan University in Guangdong said that labor costs in China,despite its continuous growth over the past decades, remain low compared with many foreign countries.

Currently, the per capita annual income of Chinese workers is only one-fiftieth of that earned by American workers, one-thirtieth of that earned by Japanese workers and one-fifteenth of that earned by workers of the Republic of Korea.

Although cheap labor costs have brought China advantages in export and attracting foreign capitals,the government should spare no time to restructure its economy and shake off the overmuch reliance on labor costs, Xu Said.

"It is the right time to change the growth mode of our economy, " said Liu Futan, deputy director of the Macro-economy Research Institute of the State Development and Reform Commission.

Given that more than 70 percent of China's economic growth was pushed by foreign trade in 2004, a number of economy powers have taken tough stance when it came to developing trade relations with China, Liu said.

"To become a real economic power, China must have consumption serve as a dominant impetus to its economy growth. Rising labor costs can play a positive role no doubt, " he said.

The argument was advocated by researcher Qian Minze of the State Information Center who preferred to view labor costs as salary income of workers rather than production costs of companies.

If the per capita monthly salary for rural workers grew 100 yuan (about 12.09 dollars), the annual income for the country's 120 million rural labor working in cities and township would presumably have grown 140 billion yuan (about 16.93 billion US dollars) in total, or 180 yuan (21.77 US dollars) per person, which would be an increase of six percent over the annual per capita net income of Chinese farmers in 2004, Qian said.

Given that the income ratio between Chinese urban dwellers and rural residents have enlarged from 1.8:1 in 1985 to 3.2:1 of last year, Qian said that the rising expense of companies for rural laborers would also help narrow the gap between cities and countries.

Source: Xinhua