A growing number of companies are moving to China's western or central areas because of rapidly rising labor costs elsewhere, according to a report released by Aon Hewitt, a global human capital consulting company.

Average salaries covering all major industries in China rose 8.4 percent in 2010, up 2.6 percentage points from a year earlier, according to the research.

"For this year, we forecast the country's overall salary increase rate will reach 9.1 percent," Peter Zhang, vice-president of Aon Hewitt Greater China, told China Daily.

The industries showing the highest pay rise in 2011 will be pharmaceutics at 9.6 percent, machinery at 9.3 percent and consumer goods at 9.1 percent, Zhang said.

One of the most crucial factors behind increasing labor costs in China is that government policies have increasingly favored workers and their rights, in a bid to redistribute and balance social income, according to the report.

"Rising wages will be a fact of life in the Chinese economy for some time to come because the Chinese government supports it, both as a means of avoiding social conflict but also, and equally importantly, as a means of promoting internal consumption and rebalancing the economy," said Auret van Heerden, president of the Fair Labor Association, in an article entitled 2011 China Labor Outlook. Local governments across China responded by raising minimum wages.

A total of 30 provinces, regions and municipalities raised their local minimum wages in 2010 with an average growth rate of 22.8 percent, according to the Ministry of Human Resources and Social Security. However, experts warned that wage increases could be a double-edged sword.

"A hike in wages is an important government initiative intended to improve the living standards of ordinary people, but it may also have negative consequences, especially for small- and medium-sized enterprises with thin profit margins," said Li Shi, director of the Income Distribution and Poverty Research Center at Beijing Normal University.

Nearly three-quarters of Chinese entrepreneurs considered the rising costs of labor as their biggest difficulty in operating their business both at present and in the future, a survey conducted by China Entrepreneurs Survey System showed.

Li Jinlong, general manager of a textile and apparel company based in Guangzhou, said wage increases have directly affected his company's gross margin.

"I have given an average of 20 percent rise in salaries to my company's approximately 230 workers since 2009. To be honest, the rising labor and raw material costs has already squeezed the company's profit margins to only 5 percent. I cannot afford a further wage increase this year," said Li.