Foreign companies should view China more as a competitive manufacturing base and as a hub for an Asian growth strategy and less as a low-cost provider of labor and resources, the American Chamber of Commerce in Shanghai said in a latest survey.

It suggested that foreign manufacturers in China develop a strategy to capitalize on the domestic market and reduce dependence on exports. It also advised that investors should develop new business models for the domestic market and tailor existing products to meet local preferences and conditions.

"Manufacturing among foreign-invested companies continues to evolve steadily, with more companies implementing sophisticated production operations and technologies while also integrating their China operations into their global supply chains," the survey said.

China remained a popular manufacturing base for foreign firms amid the global economic downturn.

But foreign investors also have to cope with different challenges - from rising production costs to lower domestic growth rates, static demand for Chinese exports and global currency volatility, said AmCham Shanghai which cited the results of the survey issued last week.

Only 10 percent of respondents last year said they had concrete plans to relocate or expand manufacturing capacity out of China in the next five years, compared with 17 percent in 2007, despite countries such as India and Vietnam offering low-cost alternatives.

About 57 percent of firms in the survey said the dual approach - exporting and tapping the domestic market - was the primary motive to establish or boost their presence in China last year, up from 47 percent in 2007.

The AmCham polled 108 foreign-invested manufacturers in China in the fall of last year for the survey, and did an updated poll of 79 companies in late December.

(Shanghai Daily July 28, 2009)