The capital Beijing was the first place to raise minimum wages, from 800 to 960 yuan (US$ 142). Central China’s Henan, the nation’s most populous province with almost 100 million residents, is raising its minimum wage by 33 per cent to 600 yuan. Such wage differences reflect disparities in purchasing power.

Back in April, Yin Chengji, a spokesman for the Ministry of Human Resources and Social Security, said that more than 20 provinces and municipalities were planning to increase the minimum wage this year. Shanghai, the country’s financial hub, ordered a 17 per cent raise to 1,120 yuan per month in April.

The latest decision came as the central government realised that the workers’ movement could not be stopped.

In response to the situation, the authorities adopted a two-pronged strategy. On the one hand, Prime Minister Wen has taken a soft approach to create more “harmonious labour relations” through wage hikes. On the other, the government has told the national police to crack down at any sign of social unrest.

“This is a step in the right direction,” Stephen Roach, Morgan Stanley’s Asia chairman, said. “China has a very low personal income share of GDP, and wages, surprisingly low wages, and limited employment growth are part of the problem.”

“The good news is that the labour market continues to improve despite slowing output growth,” Qu Hongbin, a Hong Kong-based economist at HSBC Holdings Plc, said. “This, combined with wage increases in some factories should offer solid support to private consumption in the coming quarters.”

Wage hikes are not only due to fears of social unrest. Higher wages and salaries among China’s 468 million industrial and services workers, plus another 100 million illegal workers, should help the country reduce its reliance on exports as engines of growth and boost the share of consumption in the economy. Indeed, without a substantial domestic market, the country’s huge industrial output will continue to depend on foreign markets for a long time.