At the end of June, a manager at Foxconn Technology - one of Apple's major contract manufacturers - said the company planned to reduce costs by moving hundreds of thousands of workers to other parts of China, including the impoverished Henan province.

While the labour involved in the final assembly of an iPhone accounts for a small part of the overall cost, about 7 per cent by some estimates, analysts say most companies in Apple's supply chain - the chip makers and battery suppliers and those making plastic mouldings and printed circuit boards - depend on Chinese factories to hold down prices. And those factories now seem likely to pass on cost increases.

''Electronics companies are trying to figure out how to deal with the higher costs,'' says Jenny Lai, a technology analyst at CLSA, an investment bank based in Hong Kong. ''They're already squeezed, so squeezing more costs out of the system won't be easy.''

Apple can cope better than most companies because it has margins of as much as 60 per cent and pricing power to absorb some of those costs. But makers of computers, phones and other electronics - including Dell, Hewlett-Packard and LG - have different profit margins, according to analysts. ''The challenges are going to be much bigger for them,'' Lai said. Most other industries, from textiles and toys to furniture, are under considerably more pressure.

One way to understand the changes taking shape in southern China is to follow the supply chain of the iPhone 4, which was designed by Apple engineers in the US, sourced with components from around the world and assembled in China. It is shipped back to the US and elsewhere, and nominally priced at about $US600 ($A685), though the cost to many consumers is less, because of phone company subsidies in exchange for service contracts. ''China makes very little money on these things,'' said Jason Dedrick, a professor at Syracuse University and co-author of several studies of Apple's supply chain. Much of the value in high-end products is captured at the beginning and end of the process, by the brand and the distributors and retailers.