The latest American Chamber of Commerce special report on the state of business in South China found budgeted investment by hundreds of its members would fall to $8.6 billion this year, from around $9.5 billion last year.
The cutbacks were attributed to a redirection of foreign investment to China's lower cost interior, as rising material costs and wages , exacted a heavy toll on coastal manufacturers.
"Many companies are investing heavily in other locations," Harley Seyedin, the chamber president, told Reuters after the release of the survey.
"They've already captured great market share here, and now they're expanding inland ... In many cases, the firms still need their Guangdong facilities to support their supply chains inland, they're just not investing as much," Seyedin added.
The poll included 400 firms this year, a third of which are multi-nationals with revenues of over half a billion dollars annually, clustered largely in coastal Guangdong province, encompassing the "world factory" of the Pearl River Delta that churns out around a third of China's total exports.
Three quarters of the firms -- probably including giants such as Procter & Gamble and Wal-Mart Stores Inc. , said they were now focusing primarily on the mainland market rather than exports, betting that China's shift to a consumption-based economy will gather momentum.
Chinese manufacturing growth slowed in February to a six-month low, according to an official survey, as the government's sustained campaign to tame inflation weighed on industrial activity.
"The Chinese government is putting a lot of emphasis on controlling inflation," said Seyedin. "There's no question the cost of everything is going up," added Seyedin who said over half of the surveyed firms were worried about inflation.
More than 39 percent of companies feared a negative impact from a rise in the yuan, which would make Chinese goods relatively more expensive. Asked about barriers to growth in South China, the surveyed companies cited regulatory issues, local competition and rising labour costs as top three challenges, with firms increasingly forced to pay higher wages to lure and retain skilled migrant workers.
"The days of cheap labour are numbered," said Seyedin. "If they're not over today, they will be in three or four years."
(Reporting by James Pomfret; Editing by Tomasz Janowski)
