HANGZHOU - Pressed by a persistent labor scarcity coinciding with a currency rise, Chinese manufacturers on razor-thin margins are at the crossroads of survival this Chinese Lunar New Year.

With the Spring Festival travel season starting Wednesday, migrant workers are rushing home for the holiday, leaving factories in East China's textile production base, Shaoxing city, Zhejiang province, mired in gloom.

Zhang Hao, vice director of Shaoxing Administrative Bureau of Employment, said, "Every year, we send staff inland to recruit workers, but we've had no luck recently and our people are returning empty-handed."

Once thought to be an endless resource, the crowds of migrant workers flowing into the booming coastal provinces have greatly diminished, and the labor shortage is starting to affect the underdeveloped interior.

Companies aspiring to survive must upgrade to raise profit margins or move inland where cheaper labor could be found, Zhang said.

Manufacturers in Zhejiang's Yiwu city, home to world's largest wholesale market, are also haunted by a long-term lack of workers that has intensified in the approach to the Chinese Lunar New Year.

Huang Yunlong, director of Yiwu Administrative Bureau of Employment, said that although many companies had been compelled to raise wages, they still had difficulty finding workers.

The higher wages come as energy and land costs are rising sharply across the country. On top of a strengthening currency, the cost of the "Made in China" exports is rising significantly.

"The price of cotton is double that of a year ago, and the Reminbi has climbed more than 3 percent over a year, which has almost deprived us of any profit," said sock factory manager Luo Fang, from Zhejiang's Zhuji city. "How can we afford the higher pay demanded by workers?"

The profit rate of China's textiles industry was normally 3 percent to 5 percent, but many small and medium-sized companies were running at a loss, said He Jiantao, vice president of Zhuji's sock manufacturers association.

Many small firms had been forced to close, He said.

Zheng Yumin, chairman of Zhejiang Provincial Council for the Promotion of Private Enterprises, said, "Many small and medium-sized firms are not contemplating development.  They are thinking about whether they should stay in business or quit."

The government is striving to transform China's low-skilled, labor-intensive manufacturing economy to a more diversified economy of high technology and innovation.

"Labor scarcity provides an opportunity for industrial upgrading," said Zhuo Yongliang, head of Zhejiang Provincial Development and Reform Institute. "The government should adopt measures to help manufacturers move up the economic ladder."