"Foreign companies reject poor labor standards, too," said Zhao, adding that she didn't believe the law would lead to multinationals moving their operations out of China to countries where labor costs were even lower.

"Global companies came to produce in China because of the low costs but also because of the huge market," she added.

Although some US companies believed that China was losing its competitive edge to rising costs, many were realizing the market potential that China has long promised, according to a recent report from the American Chamber of Commerce in Shanghai.

As economic reforms have improved the climate for US companies in China, the vast majority of them planned to increase investment in the country, said the report.

Zhang Yansheng, head of the International Economic Research Institute under the National Development and Reform Commission, said that "the new law is part of the progress China has made to perfect its market economy system" and that China would create a better business climate by updating the legal system. And if companies did decide to move to places with cheaper labor, that was just "the rules of the market economy," he said.

"As China's population ages, industries that are too labor-intensive will have to move out of the country" anyway, he said. "Although China has a bigger population, India has two times as many young workers as China." He added: "China must upgrade its industries. The world's factory should not be merely a packaging plant or a composing room with low-quality laborers."

As China strives to restructure its economy and raise workers' incomes, companies that solely relied on cheap labor would not have good prospects in any case, said Wang Yiming, an expert in personnel management with the Chinese Talents Society.

Statistics indicate that Chinese workers' pay has been rising rapidly in recent years. Wages rose 14 percent in 2005, according to the central bank. And monthly wages rose 18.8 percent in the first nine months of this year, according to the National Bureau of Statistics.

Labor costs in China are low by developed-world standards, equating to perhaps 2-3 percent of what workers earn in the West, but China is hardly the lowest-cost location in the world. For example, textile workers in coastal provinces cost about US$1 per hour, but that's three times as much as in Vietnam, Cambodia or Bangladesh, according to Deputy Minister of Commerce Gao Hucheng.

China's advantage in low labor costs has become an unhealthy model of growth and led to a loss of national welfare, said experts.