Thirsty Ghosts has a great article about how China's new labor law has started to spell the end of China as a low-cost world factory. There are really several factors here: first, most of those people from the country side who could act as migrant workers for big plants in the industrialized cities have already come in and done their work. Even without government intervention, the dry up in labor supply was leading to higher wages.
Second, as Jonathan Adams points out, the new labor law has had a huge effect:
The new law has sent shock waves through the Taiwan business community in mainland China. Downsizing is one survival strategy. The law mandates contracts for all employees, open-ended contracts for long-term employees, and health insurance and other benefits. Unlike past labor laws, it provides more channels for workers to bring complaints against employers.
The net effect, according to businesses, analysts and government officials, is a fundamental shift in China’s production landscape. “The end of rock-bottom Chinese labor is near,” says Cheng Tun-jen, an expert on cross-strait economics at the College of William and Mary. With that comes the end of China as the world’s cut-rate factory.
Still, China is trying to make it easier for Taiwanese firms to keep operations there:
Many Taiwan firms are seeking greener pastures, moving production to places like
Vietnam, the new low-cost platform of choice. They’re also eyeing western China,
where Beijing has left some incentives in place to lure foreign money to the
poorer hinterland. A Chinese Commerce Ministry official recently announced that
China would help Taiwanese firms struggling with higher costs by offering loans
and other incentives if they expand inland.
So the question is, is the political debate about further economic opening up to China really more or less a moot point? If the economic impact of such an opening should have minimal effect, shouldn't the focus be on improving investment and trade with India, Vietnam or other nearby countries? And shouldn't this also make one reconsider on exactly what soverignty issues Taiwan has to surrender in order to get Beijing to agree to direct flights, since the positive economic impact would probably be limited anyway?