With increasing wages in China many things change: the lure of offshorisation fades, Chinese domestic demand (suppressed so far) will increase, and the Chinese themselves are going to ask for better environmental and work standards. This will translate into more demand for Western workers, and thus an end to labor cost erosion - and to living standards stagnation;

I've read that there's plenty of scope for companies to seek out cheaper labour within China. Wages in major cities and export-oriented regions like Guangdong are high by Chinese standards, so companies are beginning to move to inland provinces where wages are lower. In particular, 'dirty' industries are migrating to poor provinces where officials will turn a blind eye to pollution in return for jobs.