Rising labor cost may affect flow of FDI

China's fast rising labor costs are likely to affect the flow of foreign direct investment (FDI) and will make the country's labor-intensive manufacturing industry face more intense competition from other Asian economies, Nomura Securities said in a report

But economists warned that such trend may start to shift as China gradually loses the advantages of its cheap work force given the expectation of further wage increases and the yuan's appreciation.

Local governments in China have announced plans to raise the standard minimum wage, with Beijing and Jiangsu province raising it by 21 percent and 18.8 percent respectively, this year.

China's consumer price index (CPI), a main gauge of inflation, rose to a 28-month high of 5.1 percent in November. The growth was mainly driven by an 11.7 percent surge in food prices, which accounts for one-third of the basket of goods used to calculate the country's CPI. The December CPI rate dropped to 4.6 percent, with food prices rising 9.6 percent, government data showed.

Senior economist at Industrial Bank Co, forecast that CPI would accelerate to 5.3 percent in Jan. 2011, outpacing November's figure.