(Source)

BEIJING—Chinese Premier Wen Jiabao bluntly warned Japan that its companies operating in China should raise pay for their workers, part of a testy exchange on an issue that threatens to become a new irritant in relations between the Asian neighbors.
 
Workers strike at the Japanese-owned Mitsumi Electric Co. factory in Tianjin, China, in July.
.Mr. Wen's comments Sunday follow a call by Japan's foreign minister, Katsuya Okada, for an improvement in business conditions for Japanese companies in China. Mr. Okada raised the issue at a high-level Japan-China meeting on Saturday. A wave of labor disputes that has swept China this year has affected a number of high-profile Japanese investors, including Honda Motor Co. and Toyota Motor Corp.

Mr. Wen responded by telling Japanese officials that the background to labor troubles in China is the relatively low level of pay at some foreign companies, a Japanese foreign ministry statement said. "We would like [the Japanese government] to deal with this issue," the statement quoted Mr. Wen as saying.

Mr. Wen's comments showed sympathy for workers who crippled production at auto-parts makers supplying Honda and Toyota. The strikes disrupted car production and called into question the investment strategy of the companies, which had previously assumed a relatively docile labor force in China.

.The China-Japan meeting covered a range of diplomatic and economic issues between the neighbors, but the subject of labor proved to be contentious.

Among foreign companies in China, Japanese companies have borne the brunt of the labor unrest. U.S. and European companies also have been complaining about what they see as a souring of the investment climate in China, although for different reasons.

Western firms complain that the playing field is tipping against them in favor of domestic state-owned companies. They especially resent rules that force them to share their most advanced technology in return for market access.

At a news conference on Saturday, the press secretary for the Japanese foreign ministry, Satoru Sato, said that "Japanese companies are facing difficulties in continuing operations in China due to threats in the factories."

When the Japanese side brought this up with their Chinese counterparts, they were told that "requests by Chinese workers at Japanese companies to increase wages are quite understandable" after two years of pay freezes during the global economic crisis, Mr. Sato said.
 
The Japanese delegation was dissatisfied with the response and might discuss the issue with China again in the future, he said.

Mr. Wen's warning to Japanese companies to raise wages is a politically motivated message in part aimed at a domestic audience—including the millions of rank-and-file workers who power the country's massive manufacturing machine, but who are now becoming restless.

His words are likely to create consternation within Japanese companies in a country where government support is an essential part of business success.

Hitoshi Yokoyama, a Beijing-based spokesman for Toyota, said the company pays "appropriate wages" to workers at several assembly and other manufacturing plants it runs with Chinese auto makers.

"We determine the appropriate wage levels by considering prices in each region we operate in and general wage and compensation packages out there in the auto industry and beyond," Mr. Yokoyama said. "We will continue to do so in the future and try to determine appropriate wage levels in close dialogue with our employees."

China's Communist Party wants to be seen as supporting better conditions for workers, and has pledged that the party is committed to eradicating the widening gap between rich and poor in the country. The government wants to engineer higher wages as part of its efforts to shift the driver of economic growth toward consumption.

Premier Wen has previously called in general terms for better treatment of migrant laborers, the core of the work force in manufacturing plants along the export-oriented eastern seaboard.

He has said he recognizes that a new generation moving from villages to work in factories won't be satisfied with the harsh conditions their parents endured. Those comments, published in the state-run People's Daily newspaper, didn't directly address the recent labor unrest.

Labor-market analysts, citing anecdotal evidence, say Mr. Wen is right in suggesting that some Japanese companies are less generous than their Western counterparts in terms of pay for both their shop floor and office workers.

When labor strikes hit Japanese-owned auto-parts factories in and around the southern Chinese industrial city of Guangzhou and the northeastern port city of Tianjin, a senior Volkswagen AG executive told The Wall Street Journal that the German auto maker had little fear of similar labor militancy. "We typically pay much more generously than Japanese-owned factories," the executive said, declining to provide concrete data to back up his claim.

A consultant with Singaporean executive-placement firm HRnet One said Chinese managers looking for jobs at Japanese companies in China often gripe about the low pay on offer. Job candidates often say they should have studied English or German, because those languages "would have helped them land much better-paying jobs," said the consultant, who declined to be named.

At the weekend meeting, Japanese officials also raised the issue of Chinese restrictions on the export of "rare earth" minerals, which are critical raw materials for high-tech industries. A top Chinese official said the restrictions were meant to protect the environment.

Tokyo isn't alone in its concern that Beijing will hold back high-tech companies is it clamps down too hard on exports of minerals such as dysprosium, terbium, thulium and yttrium. Washington has also expressed a hope that Beijing will allow free trade in the minerals, used in electronics, aviation and atomic energy.

—James T. Areddy, Liu Li and Takashi Nakamichi contributed to this article.