China saw more labor strikes crop up June 8. Just outside Shanghai, a strike of 2,000 people in Kunshan City, Jiangsu province, broke into violence when riot police attempted to force workers off the streets and back into a Taiwanese-owned factory, leaving around 50 people injured. Separately, workers staged a walkout at a factory belonging to Honda subsidiary Yutaka Giken Co, in Foshan, Guangdong province, following last month's strikes at Honda facilities. Workers also walked out of a plant run by Honda Lock (Guangdong) Co., Ltd in Zhongshan, Guangdong province on June 9. The latest spate of strikes and protests in China show that creeping wage inflation has returned. The Chinese government is aware of the need to let wages rise to restructure its economy. But at the same time, higher labor costs threaten to undermine the basis of China's economic strength — its low-end manufacturers. Conspicuously, major labor incidents have so far targeted Taiwanese or Japanese companies, and at least one company with close ties to South Korea. The highest profile case involves Foxconn, owned by Taiwan's Hon Hai. A series of worker suicides at Foxconn has brought intense media scrutiny on the major electronics parts producer, which services the biggest global brands. To appease workers, Foxconn offered raises of 30 percent and even 70 percent, an increase that workers suspect will not be followed through on. Similarly, strikes at Honda car factories in May led to offers of a 24-percent wage hike. The June 8 strikes occurred at the Shuyuan Machinery Enterprise factory, which belongs to Taiwanese company KOK International Enterprise Group, and the Foshan Fengfu Autoparts factory, which belongs to Japan's Yutaka and Taiwan's Full Wei Industrial. Wage increases represent the most likely solutions to those labor disputes. In another localized cause of recent wage increases in China, since the economic crisis, millions of migrants have returned either to their homes or to smaller cities near their homes. Some of this movement was due to government stimulus and urbanization plans aimed to boost development in the interior, which have left factories in some coastal regions trying to find workers to fill job openings. A broader cause of wage increases is the trend toward the production of higher-value products in China's manufacturing sector. The transition means semi-skilled workers are increasingly in demand, but China's educational system is not producing enough of them. Finally, the youngest generation of migrants is not as eager to work in factory conditions and has begun demanding better conditions and higher pay. These factors have also caused some companies to offer higher wages to attract workers. Wage rises at select companies are part of a trend that began in early 2010 in which local governments in wealthy coastal provinces began raising minimum wages. Jiangsu, Zhejiang, Guangdong and Shanghai have all raised minimum wages by an average of between 10 and 20 percent, with the monthly minimum wage in Shanghai reaching 1,120 yuan ($164), the highest in the country. Chinese state press suggests that wage increases will focus on attempts not just to raise wages, but to raise them relative to the province's highest income levels in a bid to reduce the overall wealth disparity. In total, 30 provinces and municipalities (out of 33) will have raised the minimum wage by year's end. The central government has encouraged provinces to raise minimum wages in light of China's ever-widening wealth disparity. The disparity is giving rise to violent crime, unrest, dissent and other ills, and it is hoped that higher wages will improve social stability. But the problem is not just that Chinese household incomes have not kept up with the pace of rising prices for housing, education, medicine, etc. Many low-paid factory workers are migrants from poorer rural regions who lack access to basic public services because they lack the proper household registration. Until this system, known as hukou, can be reformed, higher wages represent the only way to improve conditions and cool social anxieties. Higher incomes are also needed to achieve Beijing's goal of restructuring its domestic economy so growth is driven more by domestic consumption than through exports. If workers make more, they can spend more. Making the transition from an export-driven to domestic consumption-driven economy is essential given a global economic context in which European consumption is shrinking due to unemployment and slower growth and in which even the United States is consuming less. China knows that exports cannot fuel its growth in the future, and that it needs to encourage more demand from the hundreds of millions of low- and middle-income Chinese, who currently either do not make enough to have any disposable income or deposit it all in banks. The danger of all this, as China well knows, is that rising wages threaten to undercut China's comparative advantage. China's surging economic growth over the past three decades was possible because of its vast pool of labor willing to work for low wages. Special economic zones allowed domestic entrepreneurs and foreign investors to make labor-intensive goods far more cheaply than possible anywhere else. As more advanced economies moved up the value chain, they outsourced the production of simple goods to China. By cutting labor input costs, producers were able to take advantage of economies of scale and seize huge market share. Over time, however, China's production capacity has become so big and it has seized so much market share that companies have trimmed their profit margins down and increasing profits is hard to do. If input costs are rising, most notably labor, then companies will be forced either to come up with new ways of increasing profits (namely by improving quality), shed workers or go bust. Ideally, this "restructuring" will make Chinese companies more sophisticated, eliminating the economically inefficient ones. But given China's massive population and poverty, eliminating companies in any sector carries serious social and political risks. This explains China's cautious approach toward economic restructuring and its anxious response to any external threats that could knock its carefully planned transition off course, such as the disruptions to the global economy that hurt exports (such as the ongoing European debt crisis) or U.S. demands to appreciate the yuan's value quicker than Beijing is willing to allow (as this would make Chinese exports more expensive relative to other currencies). Wage increases are no exception. The central government is encouraging local governments' minimum wage increases to appease workers and advance economic reforms, and is drafting broad new wage regulations. But it does not want the process to move too fast or become too spontaneous. It will coordinate with local governments to manage both the labor side and the business and investment side, and needless to say, it will continue to control labor organization through the All-China Federation of Trade Unions. This is the point where the latest labor strikes come into Beijing's calculations. Top officials mostly have remained quiet about labor issues. President Hu Jintao and Premier Wen Jiabao have alluded to wanting workers to have proper work conditions and to live dignified lives, but no high-level officials have commented specifically on the recent spate of strikes. State media has jumped on the issue of the firms involved being foreign. The Foxconn suicides have been widely condemned, with Beijing allowing the media to report on the deaths with few restrictions. Even so, the strikes have caused Beijing headaches. The Honda strikes involved a spontaneous labor group, and when the official union was deployed to restrain these strikers, the two sides clashed. Beijing does not want spontaneous labor movements circumventing the state-controlled one, and in the last week workers at two more factories have begun ad hoc protests. Moreover, the large strike in Kunshan on June 8 happened close to Shanghai during the World Expo, with countless dignitaries visiting. The last thing Beijing wants during this period is protests in Shanghai highlighting the plight of unhappy Chinese workers in the global media. Ultimately, Beijing knows it is running a risk in allowing strikes to target foreign companies, since strikes can just as easily be initiated against domestic companies or at otherwise politically undesirable times or places. Even assuming labor unrest remains concentrated on foreign firms, Beijing must tread carefully. While Beijing knows that China offers many advantages to foreign investors, including both a large unskilled labor pool and a large technically skilled labor pool, it also knows it has competitors. In reaction to the recent events, Taiwan's minister of economic affairs has called on low-end Taiwanese manufacturers to relocate if they want to survive, suggesting India, Indonesia and Vietnam as potential destinations for outsourcing and calling on high-end Taiwanese firms to return to Taiwan. Meanwhile, Philippine trade officials have recently claimed that Japanese investors have expressed greater interest in investing in the Philippines and Indonesia in reaction to rising labor costs in China and low levels of skilled workers in Vietnam. As usual, then, China must strike a careful balance between appeasing workers and minimizing social frustration and reforming its economy gradually without triggering social disruption or economic slowdown. It must also balance the need both to attract foreign investment and to prevent foreign exploitation — especially important for China given its history of abuse by foreign powers. This is a tall order, and the history of industrialization does not suggest it can be accomplished smoothly.