Fewer multinational manufacturing companies are planning to relocate their manufacturing facilities out of China despite higher operational costs and the impact of the global economic downturn, according to a survey unveiled on Friday.

The global business community is increasingly viewing China as an essential player in an eventual economic turnaround with multinational manufacturers strengthening their commitment to China as a key base of operations for Asia.

The survey, jointly conducted by the American Chamber of Commerce in Shanghai and management consulting firm Booz & Company, found that among the 108 multinational companies (MNCs) polled, only 10 percent expressed interests in relocating their manufacturing plants outside of China over the next five years, compared with 17 percent last year.

The number of companies that expressed concern over China losing its competitive edge to lower-cost countries such as India and Vietnam fell by more than half.

The global economic crisis has changed assumptions regarding future business strategies for virtually every manufacturer operating in China. Overall, multinational companies said they were facing difficult times in China.

Before the recession, the bigger challenges facing companies were higher material and compensation costs as well as the appreciation of the yuan, but now declining rates of domestic growth, weaker demand for Chinese exports and tight credit are becoming paramount problems.

Near half of the MNC manufacturers said they suffered a fourth-quarter export decline of more than 10 percent year-on-year, with about 13 percent saying they experienced a sharp export shortfalls of 30-49 percent.

Despite all the challenges of the downturn, most MNCs surveyed said they were still fairly optimistic about China's efforts to position itself as a world-class manufacturing center.

Meanwhile, the ongoing economic recession has pushed multinational manufacturing businesses to focus more on "how we manufacture" in China, instead of the mass quantity of products they made here.

Nearly 25 percent of the respondents were upgrading their production facilities in China with the best technologies they had, with the Chinese government sparing more efforts to improve industrial infrastructure as it continues its quest to become a higher-value global manufacturing center.

(China Daily February 21, 2009)