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Why a pay raise for workers signals key shift for China's economy

Workers at Foxconn and Honda won hefty pay raises this week. Higher wages will help Beijing move China's economy away from relying on masses of unskilled workers and toward higher-value manufacturing.

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Foxconn workers walk on a footbridge outside a Foxconn factory building in the township of Longhua, in southern Guangdong province Wednesday. Production line workers at Foxconn will get a pay rise this week, their goal was to dampen labor unrest.

Bobby Yip/Reuters

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When two giant employers in southern China offered their workers big wage increases this week, their goal was to dampen labor unrest. But the hikes do more than soothe factory floor anger; they signal huge changes in the way “the workshop of the world” is feeding global consumers.

Rising salaries, say economists and labor experts here, are sounding the death knell for the production system that has fueled much of China’s phenomenal economic growth for the past three decades. Instead of relying on huge numbers of workers making miserable wages at unskilled jobs, and churning out cheap exports, the government is keen on moving up the value chain.

At the same time, rising incomes are laying the foundation for another seismic shift in China’s development model, as the government seeks to base economic growth more on domestic consumption and less on exports.

Foxconn, which makes the iPhone and other famous electronic items, announced an immediate 30 percent pay hike on Wednesday, more than originally planned, in a bid to raise morale and efficiency after a spate of employee suicides. Honda offered a 24 percent pay raise to striking workers at a parts factory on Monday, tempting them back to work.

The moves followed a decree from the regional government of Guangdong, the hub of China’s manufacturing industry, that boosted the minimum wage by 20 percent a month ago.

Workers gain bargaining power

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