A decision by the province that is China's second biggest exporter to raise minimum wage rates has heightened expectations that other provinces and cities will soon follow, just as the central government's attention is shifting from economic stimulus to rising inflation.

Eastern Jiangsu province, which exports more than Brazil and South Africa combined, raised its monthly minimum wage rate by 13 per cent to Rmb960 ($140) last week. It was the first time the rate had been adjusted in two years.

The potential round of minimum wage increases comes amid signs that inflationary pressures are picking up in the Chinese economy after a rapid recovery in the second half of 2009 fuelled by a massive government stimulus programme. Government officials are debating whether to slow the pace of new loans and begin appreciating the currency to dampen inflationary expectations.

“This could be a red flag about wage inflation,” says Arthur Kroeber, editor of China Economic Quarterly. “Inflation in China is becoming systemic because of rising wages caused by a tighter labour market.”

Last year, in the aftermath of the global financial crisis, local governments were reluctant to raise wage rates and put additional strain on already struggling factories. But now that officials are confident the worst is over for China's export sector, they are more willing to address workers' concerns.

“The economy is picking up again,” said Geoffrey Crothall, of the China Labour Bulletin. “Inflation and basic cost of living are rising. It's in local governments' interests to make some accommodation.”

Jiangsu's adjustment of the highly symbolic minimum wage also reflects growing competition among different regions to attract migrant workers after the Chinese new year holiday, next week. Neighbouring Shanghai is expected to raise its rate by double-digits on April 1.

Beijing and cities in southern Guangdong province, the country's biggest exporter, are considering adjustments over the coming few weeks, rather than months. Deputies to Guangdong's people's congress have even suggested linking minimum wage levels to the consumer price index.

The consumer price index rose from 0.7 per cent in November to 1.9 per cent in December, which some economists believe is the start of a concerted rise in inflation that could prompt authorities to tighten policy.