Yasheng Huang, author of the brilliant Capitalism with Chinese Characteristics, has written a very insightful take on Chinese labor unrest at the New York Times Room for Debate blog.

I believe that a wage increase is long overdue and the Chinese government should be credited for finally beginning to tackle this issue. That said, the process is fraught with some risks. First of all, the stagnant wage growth was not limited to Foxconn and Honda.
In fact, these two plants paid better wages than the average Chinese factory. It is a nationwide problem. It is all but guaranteed that workers in other plants are going to make similar demands. In the ideal situation, you would want the wage to grow in parallel with G.D.P. growth rather than wage lagging G.D.P. growth by a huge margin (as it did for the last 20 years) or having wage growth run ahead of G.D.P. growth substantially (as may be the situation now).

The danger, Yasheng Huang goes on to explain, is that a rapid shift from policies aimed at actively suppressing wages to policies aimed at actively boosting wages might cause serious disruption. Moreover, he suspects that this shift could cause problems in the United States, contrary to the view embraced by many sophisticated observers:

Some have argued that the U.S. firms need not worry because the labor component of their production costs is small. This is simply not true. U.S. firms themselves may not have a high labor component in their cost structure but their suppliers — and their suppliers — do. American firms, which sit at the top of the food chain, depend heavily on the labor-intensive operations down below.
A ripple effect across the whole supply chain will have a huge effect on the existing business methods and supply chains. It is simply incorrect to say, as some of the business pundits have said, that the so-called China advantage does not depend on cheap labor but on supply chains. No, the supply chains themselves depend on the costs of labor being low.

In the long-term, however, wage increases, and RMB appreciation, are a good thing insofar as they’ll help address global imbalance and improve living standards in China, a desirable end in itself. And there are a number of related happy outcomes:

U.S. firms should start thinking about how to sell into the Chinese market rather than simply using China as a production base. Also, if the rising labor costs in Guangdong force firms to source their products in the interior regions, that would allow workers in those regions to have a family life and a job at the same time.

The first part is obvious. Re: the second: if would-be male economic migrants can stay closer to home, we’ll see less family disruption and the stabilizing spread of prosperity.