Eoin Treacy's view The increasing consumer potential of some interior provinces is fostered by growing wages. Between 2000 and 2008, average annual wages grew by 15% per year on a national scale. But wage inequalities persist - both between and also within provinces, for instance on a rural urban scale. Northern and coastal provinces show above average nominal wage levels (see chart 14); in the case of the northern region this is mostly driven by Beijing and Tianjin. Nominal wages in the Western provinces are only marginally below the national average, while those in other regions show substantially lower values.

Regarding consumption potential real wage developments are more important. Since the "Go West" initiative was introduced, real wages have displayed steady growth between 11.4% on average for the coast and 14.2% for the north. Western provinces' real wages have grown by 13%, which is slightly higher than the nationwide average (see chart 15). Recently, real wage growth declined sharply for all regions but the north. This can be explained by the sharp uptick in inflation rates in 2008 which for instance reached double-digits in western provinces like Gansu, Qinghai and Xinjiang.

Low labour costs have been supportive of China's competitiveness. However, coastal provinces had already reported shortages of unskilled labour in 2004, when China's economy was booming. Companies in China's coastal region, especially in the Pearl River Delta and Shanghai, are increasingly confronted with rising wage pressures. As infrastructure for business operations expands in inland provinces as a result of the central government's regional development strategy, the pool of migrant workers is drying up. This is further amplified by the fact that demographic change is affecting China's rural surplus labour force. If diminishing supply of low-cost labour is not just a temporary phenomenon, this will initiate a shift in coastal manufacturing towards higher value products. Still, existing wage differentials between coastal and inland provinces can prove beneficial for domestic and foreign companies alike, as can be seen by the increasing number of business relocations to for instance cities like Wuhan in Hubei province or Chongqing, both large cities at the Yangtze River.

Having said that, there are also signs that some inland provinces try to leapfrog the stage of cheap manufacturing, directly moving into higher value-added segments. Science and High-Tech parks in municipal economic zones of the South and West, for instance in Chengdu, Chongqing, and Xi'an, are aiming at attracting more foreign investors who make use of the lower wage levels and escape the coast's increasingly competitive labour markets.