In the Pearl River Delta, once dubbed "the workshop of the world" and the preferred location for low-cost manufacturers, low-wage workers are increasingly scarce.

Latest government figures showed the Pearl River Delta, China's largest export region boasting nearly one third of the country's total export, saw an exodus of 22.5 percent of its migrant workers in 2009.

The shortages can be attributed to government policies aiming at closing the yawning income gap between the urban rich and the rural poor.

Farmers now have more reason to stay in the countryside as the agricultural tax was eliminated and allowances are offered throughout the country; housing projects and infrastructure buildings are sprouting even in remote areas, creating alternative jobs for workers who once had to travel thousands of kilometers for jobs on the coast.

Low-wage workers are fading from the scene.

Persistent labor shortages are pushing up wages throughout China's export hubs, threatening to weaken the competitiveness of "made in China" on world markets.

In Guangdong Province, the center of the Pearl River Delta, the provincial government last week announced the raising of minimum wage by an average of about 21 per cent from May 1.

The rise will bring the minimum wage, which does not include benefits, overtime, board and meal allowances, up to 1,030 yuan (150 U.S. dollars) in the provincial capital, Guangzhou, and to 920 yuan in Dongguan, a major manufacturing center.

Jiangsu Province, neighboring Shanghai on the Yangtze River Delta, last month raised its monthly minimum wage rate by 13 percent to 960 yuan.

UNBEARBABLE BURDEN

The provincial governments said the wage rises would help attract workers from other areas and improve the lives of low-income earners, in line with the government's drive to redistribute the national wealth.

However, the side effects are keenly felt by Tan Xiaojun, owner of Dongguan JiaHeXin Shoes Co., Ltd., one of the thousands of low-value firms making goods for Western brands.

He said his firm could only afford to pay each worker 1,500 yuan per month at most, but most of the young workers asked for 1,800 or more.

An additional 300 yuan each per month means a factory with 1,000 workers would have to pay 300,000 yuan a month -- an unbearable burden for small and medium-sized enterprises (SMEs), he said.

The company is short 200 workers, but Tan expected the shortfall to hit 500 when more orders arrive in the following months.

Tan's hesitance to raise wages should come as no surprise given wafer-thin profit rates.

Last week, the China Council for the Promotion of International Trade said a survey of 1,000 businesses showed exporters in labor-intensive sectors generated profit margins as low as 3 percent.

Tan said the company had to recruit casual workers when orders are rising or to simply turn down orders.

The problem extends to Zhejiang Province, another major export center, where Zhang Qingwang, manager of a stationary manufacturer, said he sometimes had to turn down orders and shy away from big orders. "In the long run, we will surely lose some customers."

MOVING UP

When sporadic labor shortages first appeared in late 2004, government officials dismissed them as short-lived anomalies. In March this year, Premier Wen Jiabao said in the government work report that structural labor shortages were likely to continue.

Local human resources authorities say Guangdong is short 900,000 workers. Local newspapers put the gap at about 2 million and said about 90 percent of labor-intensive firms are over-stretched.

Labor-intensive firms are moving up the economic ladder.

However, for all the complaints of the factory owners, the situation has a silver lining for the world's largest exporter and third largest economy.

"We are seeing an end to the period of extremely low-cost labor in China, and Chinese-made goods are becoming less of a bargain for overseas clients," said Cai Fang, director of the Institute of Population and Labor Economics, Chinese Academy of Social Sciences.

He said the gradual loss of low-wage workers was spurring some of the manufactures to move up the economic ladder.