China holds competitive edge as top manufacturer

The renminbi's appreciation against the US dollar is particularly negative for Chinese products' competitiveness, Zhou added.

Exporters in China's eastern provinces are suffering from a labor shortage, with factory owners often complaining about their high staff turnover rate.

At a news conference on Friday, Ma Jiantang, head of the National Bureau of Statistics, said China's working-age population fell 3.5 million to 937 million in 2012.

Rising labor costs are a direct result of the nation's shrinking labor pool. According to the Japan-China Economic Relations and Trade Center, the average monthly wage for a worker in Guangzhou is 1,850 yuan ($295), while it is 752 yuan in Vietnam.

In the survey, global CEOs rated Vietnam and Indonesia as rising competitors of China, ranking them 10th and 11th respectively.

A more telling fact is the decline in foreign direct investment. Total FDI flowing into China fell 3.7 percent in 2012 to $111.72 billion, according to the Ministry of Commerce.

This is the nation's first annual decline in FDI since 2009, shortly after the outbreak of the global financial crisis.

Manufacturing FDI took an even greater hit in 2012, dipping by 6.2 percent.

Well aware of the trend, many foreign companies have started to invest in other emerging markets to hedge their China exposure.

Many Japanese companies are adopting a "China plus one" strategy, a policy of managing risk by locating plants and facilities in China and one other Asian nation.

According to a Reuters survey, 37 percent of Japanese companies said they had grown more cautious toward using China as a production hub over the medium term.

But there are still optimistic voices insisting that China's advantages remain apparent.

"China may lose its edge in low-end manufacturing, but is still very competitive in medium- and high-end manufacturing," said Li Yushi, vice-president of Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

Li, who is a guest economist of China Daily, said Chinese workers are more skilled and have a stronger work ethic than their counterparts in many emerging economies.

Andrew Heath, director of international marketing division of Shenyang Machine Tool Co Ltd, China's largest machine tool producer, said China's manufacturing strength lies in its established supplier network.

"Those who are talking about relocating do not know the basics of business. It is not so easy to relocate plants," he said.

"We need to have natural resources. We have to purchase and have a supply chain. And we have the huge market. Why would I move?"

The service industry is another potential growth point for FDI flowing into China, and an area that could absorb workers laid off from manufacturing companies.

Despite the drop in manufacturing FDI, China's service sector saw an increase of 4.8 percent in its FDI in 2012.

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