WHEN Hong Kong manufacturers first started pouring over the border into Shenzhen in the early 1980s, it was for one very good reason - cheap labour. It was that same reason which lured thousands of Taiwan companies to set up shop in neighbouring Fujian and was the primary motivating force behind the decision of just about every major European, American and Japanese corporation to establish a joint venture on the mainland. Today, the situation is rather different. Labour costs have risen alarmingly over the past three years and in many cases now significantly exceed those in southeast Asian countries such as the Indonesia, Thailand and the Philippines. A typical large-scale manufacturing joint venture in Beijing now pays factory workers the equivalent of HK$800 a month but when this is combined with housing, clothing, medical and other benefits, the total wage bill rises to around $3,000 a month. Foreign executives say that some businesses have seen their labour costs more than double since 1990, calling into doubt the economic viability of manufacturing in China as opposed to other Asian countries. ''If costs keep rising the way they have been, I'm sure people in [my corporate headquarters] are going to start wondering what we are doing here in China,'' a European joint-venture manager said. Those hardest hit have tended to be hi-tech firms which employ highly trained and well-educated scientists and technicians. In the mid-1980s, employing engineers and well-trained technical staff was ridiculously cheap. But employees rapidly caught on that they could sell their talent elsewhere for considerably more money. ''It has got to the point now where I have to constantly upgrade my staff's salaries just to stop them jumping ship,'' a Hong Kong manager said. ''They come to me and say they have been offered such and such a salary and other benefits to work at a rival company. They could well be lying but I can't afford to take the risk.'' He said the labour market in some sectors was so fluid now that it made Hong Kong look positively stable. Highly specialised staff are proving particularly expensive. A Taiwanese record company, for example, had hoped to hire one of the mainland's most promising film-makers to direct a number of music videos but after some brief negotiations they gave up - they simply could not afford his fee. But not only foreign companies are seeing costs spiral. State-run firms and private enterprises have been shelling out additional bonuses all year to cover employee's increased rents, utilities and shopping bills. Average per capita income in the cities for the first six months increased by 28 per cent to 1,116 yuan, according to official statistics. Even allowing for inflation, that was an increase of 13.5 per cent over the same period last year. And with urban inflation continuing to gallop at around 20 per cent, wages are set to rise even further in the second half. Beijing seems determined that wages in the state sector will keep pace with inflation despite the risk of increased money supply. The Government appears more concerned with keeping the lid on potential urban unrest by ensuring people have enough money in their pockets than with the long-term risk of hyperinflation. But as long as wages continue to rise, China will become a less and less attractive proposition for companies seeking a cheap off-shore manufacturing base. It might not be too long before we see foreign companies setting up in Southeast Asian countries with the express aim of exporting goods to the booming consumer market in China.