High-end manufacturing holds the key

Wu Yu, a manager at a Suzhou-based factory, is one of several Chinese businessmen who have been affected by recent developments. Labor shortage and rising labor costs are the main challenges for Wu's company, a unit of the Taiwan-based computer maker Pegatron Corporation.

Wu says that most of his employees are those born after 1990 and work for average seven months before they seek fresh prospects with other companies.

"These youngsters are more ambitious and have bigger dreams than their parents. They want to explore the world and leave the job when they find it boring," he says.

"Like every other Chinese, they also want to own a house. But in Suzhou, that dream is almost impossible to realize. When they realize this, they are disappointed and often leave for a higher-paying job in other cities."

Apprehensions are also growing in industry circles that the floating and shrinking labor force would soon become a grave threat to Chinese companies as they look to make rapid strides in global competitiveness.

"A foreign diplomat recently told me that Chinese products are facing the same challenges that Japanese and South Korean products faced earlier from China. The only difference is that the competition is now from other Southeast Asian nations," says Zhou Shijian, a senior trade expert at Tsinghua University.

The renminbi's appreciation against the US dollar has also been bad for the competitiveness of Chinese products, Zhou says.

"According to the research findings of a Japanese nonprofit trade institute, the average monthly wages for a worker in Guangzhou is 1,850 yuan ($295, 224 euros), while it is 752 yuan in Vietnam. With such a huge gap, China may find it difficult to compete with other Southeast Asian nations in low-end products," Zhou says.

The 2013 Global Manufacturing Competitiveness Index, however, paints a totally different picture. Most of the 550 chief executive officers and senior leaders of global manufacturing companies, who participated in the survey, admitted that China remains the top destination for manufacturing, and will retain its top ranking for the next five years.

Germany and the US were ranked second and third after China in manufacturing competitiveness. But both these nations could be replaced by India and Brazil over the next five years, the survey said.

Meanwhile, members of the American Chamber of Commerce in South China expect their investment budgets to total more than $16.5 billion over the next three years, an increase of 40 percent on the previous three years. These companies in the region expressed strong confidence in the market and in China's economic reforms, according to a survey published on Feb 26 in Guangzhou.