Spiralling wage inflation in China is set to increase talent mobility to “tier 2 cities” in the Western provinces of the country, according to David Arkless, executive board member at Manpower and vice president of the China International Council for the Promotion of Multinational Corporations (CICPMC).

Bloomberg reports that when China’s premier Wen Jiabao convenes the annual National People’s Congress on 5 March, delegates are to approve a five-year plan designed to elevate the role of domestic demand. That strategy will include endorsing higher pay, with all 31 Chinese provinces and regions likely to boost their minimum wages in 2011 for the second year in a row, according to Credit Suisse Group.

Arkless told Recruiter: “China was originally seen by most global companies as one step on the ladder for low-cost labour with a decent infrastructure. Now most companies that we deal with are starting to move from the main cities out to the tier 2 cities to get cheaper wages or they are going to Vietnam, Indonesia and Cambodia. As pay rates go up, companies are going somewhere else. China could suffer from that. They are either going to see a move away from the cities with foreign investment or companies going to places like Vietnam, where rates are less than 20% of China.

 “There is an urban and a non-urban issue. The big cities are attracting foreign and direct investment. Manufacturing, development, logistics; that’s where all the big ports are. What is happening in certain cities is they can’t find enough of certain skills including good sales people, decent management, logistics people, high-level programmers, engineers. But you find loads of low-cost labour that comes in from the countryside without any skills. The result of that is people pay anything to get the right skills so the pay rate escalates and that is happening in all of those job areas and that has resulted in pay increases of up to to 30% and in some cases 40%. If you look at expertise in IT or consulting, you can get the same pay rate in Shanghai as you get in New York today.

“The old days of low-cost labour in China are over. Most of the major cities are running ahead. You have consumer inflation and the countryside that remains static. The Western provinces are standing still in terms of wages, which is the overall strategy to make a decent job of redistributing economic investment of companies that want to come into the country. They are trying to get the foreign direct investment out into the countryside.”

For more on Asia-Pacific, see the 9 March issue of Recruiter, which includes a guide to working in the region.