A record 95 percent of businesses in South China said they are profitable or will be within two years, according to the latest annual survey conducted by the US Chamber of Commerce in South China.

"This indicates to me that companies on the mainland have, more or less, already overcome the challenges brought about by the economic slowdown two years ago," Harley Seyedin, president of the chamber, said on Tuesday, citing the 2011 Special Report on the State of Business in South China, the sixth of its kind.

About 90 percent of those polled rated the business environment in South China as good, very good or outstanding, the highest percentage since 2007.

A total of 437 businesses, mostly chamber members, participated in the survey, with 88 percent of them having their parent or holding companies outside the Chinese mainland.

The budgeted investments of the businesses surveyed for 2011 stood at $8.617 billion, and the coming three years will see investment of $9.625 billion, about 8 percent down from the figures in the 2010 survey.

The declines are the natural result of heavy investment during the past two years, Seyedin said.

For the sixth year in a row, the majority of those polled listed regulatory issues as the biggest perceived business challenge in the coming year.

Other difficulties facing businesses included increasing competition from Chinese companies, the exchange rate, the rising cost of labor, and persistent difficulties in finding qualified managerial talent.

About 39.6 percent of the participants indicated the appreciation of the yuan this year will have a positive effect on their operations, while 39.2 percent predicted a negative impact.

Those engaged in export-oriented manufacturing, approximately 25 percent of those surveyed, are feeling the pinch from rising labor costs the most, with their competitiveness weakened in the international market, Seyedin said.

Around 53 percent of participants expected rising inflation to have a negative impact on their business this year.

Meanwhile, as the government attempts to increase domestic demand and indigenous innovation, China is set to be "more fully engaged not only in satisfying worldwide consumer demand but to a large extent constituting it as well," according to the 2011 White Paper on the Business Environment in China released by the chamber.

"They can only enrich the global economy even as Chinese firms and technologies help to drive it ever forward to the benefit of all," the white paper says.

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