News last week that Taiwanese-owned IT firm Foxconn, the world’s largest maker of computer components, is to transfer much of its manufacturing operations to central China, is an early sign of how the developing Chinese economy has to change if it is to progress.

I have noted that China has been nearing this stage in previous blog entries, (here, here and here too), and the transfer of hundreds of thousands of jobs from Shenzhen, close to Hong Kong, to the inner heartland of China shows that the country has reached this point.

Foxconn, which manufactures the iPad for Apple, as well as other products for Dell, HP, Sony and Nokia, employs almost one million people in China. Nearly half of these are based in Shenzhen, the major city in the Special Economic Zone of Guangdong Province.

The firm is said to be seeking new lower-cost locations for its ‘low-end’ manufacturing. Clearly, it is concerned about the higher wages its staff earn, which rose by 70% last October.

The Shenzhen plant will be converted into higher-end engineering and R&D centre in a process that will take several years and result in Foxconn’s workforce there shrinking to around 300,000. The firm plans to carry out more value-added manufacturing at its Shenzhen super-factories.

So at first sight, this is an inevitable step in the development of China’s economy from take-off stage, where a country takes advantage of its low-cost labour to attract Foreign Direct Investment (FDI) in manufacturing, to the drive-to-maturity stage where wages rise, leading to firms targeting higher cost production based on value-added design and innovation skills.

However, the other aspect to this development is Foxconn’s wish to rid itself of its association with worker suicides at Shenzhen. The company has threatened to close this factory before, when it mooted that it could relocate back to its base in Taiwan. By moving to central China, Foxconn hopes to shake-off its poor image in this regard. At the time, it also threatened to stop making extra compensation payments to the families of workers who take their own lives, in effect suggesting that this is the main reason behind the spate of suicides.

It’s hard to imagine a firm in the UK, EU or US taking this stance. Isn’t it?