Workers at a lock factory in southern China that supplies Honda Motor Co <7267.T> challenged managers on Friday, demanding higher pay and freedom to form independent unions, banned in the export powerhouse.

A wave of labor unrest has rippled across some foreign-owned factories in China as a new generation of migrant workers presses for more of the nation's growing wealth.

Strikes were reported this week at a Taiwanese-owned sporting goods supplier in Jiangxi province, and at Japanese sewing machine maker Brother Industries <6448.T> in Xian -- both far from China's wealthier regions near Hong Kong and Shanghai.

The unrest is a worry for the Communist Party, which has long discouraged independent worker action and punished protesters.

President Hu Jintao and Premier Wen Jiabao have vowed to lift the incomes of hundreds of millions of farmers and workers, but officials are also trying to boost exports, which rely on cheap migrant labor drawn to Guangdong from poor villages inland.

The rising demands of those workers, especially pressure for autonomous unions, could present hard choices for the government, which treats such demands as a threat to precious stability.

This is a signal to the government that it has to adapt to treating labor disputes as a part of economic life, not as a political threat, said Wen Xiaoyi, a researcher at the China Institute of Industrial Relations in Beijing who specializes in the auto industry and has visited Honda plants in Guangdong.

So far, I think the government has been relatively restrained ... But if this spreads and the economic and political demands grow, that will test the tolerance of the government.

The unrest could furnish another argument for Chinese officials opposed to allowing the yuan to rise in value -- a demand that U.S. officials and lawmakers made with renewed vigor this week. Chinese-based exporters and their official backers have said that any rise would wipe out the thin profit margins of many companies.

Although labor makes up only a fraction of manufacturing costs in China, higher wages could force prices up and hurt the exporters that Beijing has tried to support by holding the currency steady since the global financial crisis worsened.

DISPUTES SPREAD

On Friday, about 500 workers gathered on the road outside Honda Lock, a Sino-Japanese joint venture that makes locks for Honda cars in Zhongshan near Macau, and refused to start work.

Their demands included higher pay, as well as the right to choose their own representation instead of having to use official state-sanctioned unions, seen as subservient to management.

Management representatives using loudhailers warned of serious consequences, and the crowd later dispersed after riot police blocking the road gave way and let people out of the area.

They have no sincerity at all. They only agreed to increase wages by 100 yuan. We're very disappointed, said a 27-year-old migrant worker from Guangxi province, who gave his surname as Chen, straddling a red motorbike parked outside the factory.

If we don't resolve things by tomorrow, we probably won't go back to work for another week, he said, adding workers were calling for a base salary of over 2000 yuan per month, compared with the current level of 1,500 on average.

The existing labor union is completely useless and never acted on behalf of the workers, Chen said.

Both sides were still at an impasse late in the afternoon.

The workers feel that their wages have been held too low for too long. Once you take away food and other costs, most of them are saving maybe 800 or 900 yuan ($117-$132) per month, said Zhang Jun, an independent labor activist from the coastal city of Yantai who was in Guangdong to help strikers.

Confrontation at Honda follows a growing number of labor disputes in China that began in the affluent Pearl Delta area of Guangdong but have since shown signs of spreading to other areas.

Workers at the Honda Lock factory have been striking since Wednesday, the third factory supplying Japan's No.2 automaker to go on strike in the past month.

Honda representatives in China said two car plants that were idled by the series of disputes were producing again on Friday, and production was expected to continue normally.

Some of the recent disputes have brought sizable pay increases to workers, including a 66 percent raise for workers at Foxconn <2038.HK>, a subsidiary of Hon Hai, and 20 percent or more for workers in the first Honda strike.

Wen, the Beijing-based researcher, said the unrest could force car firms to rethink labor relations and supply chains.

The Chinese motor vehicle sector has been learning Toyota's just-in-time manufacturing model, he said. But now we've seen that the just-in-time model means any link in the chain is vulnerable to disruption and if one supplier stops, the whole manufacturing cycle has to stop.

($1=6.830 Yuan)

(Additional reporting by Chris Buckley in BEIJING; Fang Yan in SHANGHAI and Chang-Ran Kim in TOKYO; Writing by Chris Buckley, Lincoln Feast and Doug Young; Editing by Andrew Marshall)

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