South China, particularly Guangdong province, needs to move away from its traditional labor-intensive manufacturing growth model and focus on growth driven by high-tech industries if it wants to maintain its standing as the manufacturing center of the world, a new survey said on Thursday.
According to a survey by the European Union Chamber of Commerce in China, the province needs to take drastic measures to prevent companies relocating investments to other destinations.
The number of European companies in South China that are relocating investments to other markets surged by 17 percentage points from last year to 24 percent in 2015, while the country's overall average increased by 5 percentage points to 16 percent.
Part of the reason why several European firms are moving away from South China is because of its fading appeal as a low-cost manufacturing destination. Guangdong had been the top investment choice for European investors in this sector for more than 15 years, said Donato Vairo, a board member of the South China Chapter of the chamber.
"Many European companies in Guangdong are export-oriented manufacturers and they were attracted to the region mostly due to low labor costs," said Vairo, who is also the general manager of an automotive electronics device manufacturer based in Shenzhen.
"With labor costs rising in Guangdong, it is natural that European manufacturers will move to Southeast Asia or even eastern Europe to capitalize on the cheaper labor costs in these markets."
There is no doubt that the focus of the European companies will still be on the huge domestic market in China and they will strive to sell most of their products in the country rather than ship them back to Europe, said Vivian Desmonts, vice-chairman of the South China Chapter of the European chamber.
The chamber, however, felt that the European companies in South China lag their peers in adapting to changing market situations.
About 53 percent of the European companies operating in South China said that the primary reason for their presence in China is to provide goods and services to the Chinese market, while the country's overall average is 71 percent, according to the Business Confidence Survey 2015 of European business in China, a joint survey conducted by the chamber and consultancy firm Roland Berger Strategy Consultants.
A total of 550 European companies, including 94 from South China, participated in the survey.
