China holds competitive edge as top manufacturer (2)

"When I talked with a diplomat recently, he told me that Chinese products used to close in that of the Japan and South Korea. But now it is Southeast Asian nations' products closing in ours," Zhou said.

The renminbi's appreciation against the US dollar is particularly negative for Chinese products' competitiveness, Zhou added.

Exporters in China's eastern provinces are suffering from a labor shortage, with factory owners often complaining about their high staff turnover rate.

At a news conference on Friday, Ma Jiantang, head of the National Bureau of Statistics, said China's working-age population fell 3.5 million to 937 million in 2012.

Rising labor costs are a direct result of the nation's shrinking labor pool. According to the Japan-China Economic Relations and Trade Center, the average monthly wage for a worker in Guangzhou is 1,850 yuan ($295), while it is 752 yuan in Vietnam.

In the survey, global CEOs rated Vietnam and Indonesia as rising competitors of China, ranking them 10th and 11th respectively.

A more telling fact is the decline in foreign direct investment. Total FDI flowing into China fell 3.7 percent in 2012 to $111.72 billion, according to the Ministry of Commerce.

This is the nation's first annual decline in FDI since 2009, shortly after the outbreak of the global financial crisis.

Manufacturing FDI took an even greater hit in 2012, dipping by 6.2 percent.

Well aware of the trend, many foreign companies have started to invest in other emerging markets to hedge their China exposure.

Many Japanese companies are adopting a "China plus one" strategy, a policy of managing risk by locating plants and facilities in China and one other Asian nation.