Foxconn Technology's agreement to improve the lot of its 1.2 million workers in China who make Apple Inc's iPads and iPhones is a signal that China is losing its title as the world's lowest-cost producer of everything.

It is not a pure economic argument, but an ethical one too that is gaining momentum following Apple's unprecedented decision to allow the largest investigation ever into a US company's operations abroad.

And after years of squeezing the profit margins of contract manufacturers making the gadgets beloved by consumers worldwide, the time is drawing nearer when big brand names may have to forego some of their profits to overcome criticism their products are built off the back of mistreated Chinese workers.

"The time of low costs and cheap labor in China has come to an end," said Jay Huang, chief financial officer of Taiwan's Wintek, a maker of touch panels for Apple and other brands with annual revenues last year of some $3 billion.

"People think the market should offer cheap products; in the past they came at the cost of cheap labor in China and workers' rest time and welfare. But now we all agree that things have to improve, and as an ethical manufacturer we must improve the welfare of employees."

Wintek has boosted amenities for its workers, including the installation of video conferencing to call their families. Another Apple contract manufacturer, Pegatron, has reorganized some workers away from single-task jobs into multi-skilled teams.

Landmark agreement

In a landmark agreement last week, Apple and Foxconn agreed to tackle violations of conditions among the Chinese workers assembling the iconic gadgets of the American firm.

Taiwan's Foxconn, which also makes products for other names, including Dell Inc, Hewlett-Packard and Sony Corp, agreed to the changes after the independent Free Labor Association surveyed three plants and 35,000 workers.

Foxconn, whose subsidiary Hon Hai Precision Industry is the main assembler of Apple products in factories in China, will hire tens of thousands of new workers, eliminate illegal overtime, improve safety protocols and upgrade workers' accommodation and other amenities.

Apple is not the first big brand to respond to criticism over how its products are made. Nike Inc made sweeping changes in the 1990s after being rocked by similar criticism.

China's economics and policy direction now suggest workers are a more powerful force though. Labor shortages and double-digit wage inflation give workers more choice. They are more likely to jump to another job to secure higher pay.

The government has pledged to lift migrant factory workers wages to ease wealth inequalities in the country. In response, many manufacturers are shifting to cheaper inland regions to keep costs down.

"What makes it different this time is that there are more internal reasons," said Zhigang Tao, professor in the Faculty of Business and Economics at the University of Hong Kong.

"In the past they were foreigners such as US labor groups who flagged awareness of China's labor rights; but now the bigger driving force is from inside China - a rising yuan, social harmony and wealth redistribution."

China has to change from low-cost and pollutive production to further its development.

"It's a turning point for the whole country. It's also part of the overall strategy to change to more domestic consumption and less exporting."