The era of cheap manufacturing in China is coming to an end.

Rising wages spurred by a series of labor disputes at factories in China, coupled with the country’s just-announced decision to allow its currency to rise in value  — making it more expensive to build things there –  will lead to higher prices for tech gadgets, cut into corporate bottom lines and force companies to rethink manufacturing strategies anchored in China, the world’s assembly line.
At the same time, the developments could create a new and enormous market for tech companies to sell their products, because they’ll most likely spur the growth of a Chinese middle class eager to get their hands on gadgets they now build but often cannot buy.

“This will be reflected in higher consumer prices in the U.S. for Chinese goods,” said Paul Tiffany, a senior lecturer at the Haas School of Business at University of California Berkeley. But, he added, “the very products that American firms make in China for export to the U.S. might now become more affordable to Chinese consumers who would then, presumably, start buying more of them.”

In the United States, personal consumption represents about 70 percent of GDP, but in China it’s no more than 35 percent. For the economic health of both countries, Americans need to save more and Chinese should buy more, he added.

“In the long run, we want a prosperous middle class in China,” added Stephen Levy, president of Palo Alto, Calif.-based Center for Continuing Study of the California Economy.  “It helps everybody. From the national policy point of view, we have been trying to get Chinese consumers to be less dependent on exports. This is just the beginning. I don’t think the wage pressures will go away.”

China’s decision to allow a slow appreciation of the yuan could set off a wave of similar moves by other Asian countries, such as South Korea, Taiwan and Japan, adding to the increasing price of manufacturing in Asia.

Though China’s currency decision won’t change the supply chain equation for tech companies in the short run, it could in the long term, said Sung Won Sohn, an economist at the Martin V. Smith School of Business and Economics at Cal State Channel Islands.

“If this trend continues, which I suspect it will, it will have a meaningful effect on Silicon Valley companies, especially when you include (currency appreciation in) South Korea, Taiwan and Japan,” Sohn added. “What do they do? Raise prices or diversify their production from China to somewhere else, Thailand or South America?”

Foxconn, the giant contract manufacturer and partner of Apple and other valley companies, just announced a doubling of workers’ wages in response to a spate of employee suicides. Other tech manufacturing companies are following suit, as is Honda, which has been hit with worker strikes at its China plants.

“Some of those wage increases are pretty dramatic,” said Ken DeWoskin, a China-based Deloitte senior adviser.

Rising costs in China require delicate economic juggling for China, which still needs low-end factory jobs for millions of uneducated workers but also must promote more sophisticated industries that can pay better salaries for the nation’s growing middle class. Letting the currency appreciate acts to curb inflation and, like wage increases, will give Chinese greater buying power for imported products, from iPhones to laptops.

Those costs also add more pressure to already pinched profit margins of tech contractors, who will eventually pass them on to companies such as Apple and Hewlett-Packard, said Kevin Wang, director of research for iSuppli in China.

In spite of rising costs in China, the nation is expected to remain the factory floor of everything from keyboards to smartphones –  for now. The country’s growing importance as a market for tech and other products, its vast armies of trained workers and countless component manufacturers are unmatched anywhere.

But with the price of doing business increasing, the desire to diversify could accelerate. “It’s a bit of an unknown because we don’t understand the breadth” of the labor unrest in China, said Jerry Nickelsburg, a senior economist with the Anderson Forecast at UCLA. “It’s a real-time event.”

Major Taiwanese contract tech manufacturers, which make all sorts of gadgets for valley companies and operate assembly lines in China, are reconsidering their China strategies and may move some of their operations to inland regions  that are much cheaper than the booming coastal cities, or to other countries, such as Vietnam.

Foxconn said it is exploring moving some work back to Taiwan, where it could set up factories that do not rely on large numbers of assembly-line workers.

Quanta, the world’s largest laptop maker, said it is considering building a plant in Vietnam or another emerging country. A recent survey of 80,000 businesses in Hong Kong by the Federation of Hong Kong revealed many plan to leave China’s major manufacturing hubs. According to the study, 37 percent plan to move most of their production lines out of China’s manufacturing region in the Pearl River Delta and more than 63 percent of firms intend to leave Guangdong province as a result of rising costs.

“Factories that are performing only assembly-line work will have to start moving inland or elsewhere,” said Hau Lee, a global supply chain expert at the Stanford Graduate School of Business. “I think we will see more companies in China moving up the value chain” and making more sophisticated products, he added.