More than two-thirds of AmCham's member companies surveyed in an annual white paper agreed that China was losing some of its competitive advantage in global markets due to rising costs.

Factors with the biggest financial impact last year included price pressures from competition and major customers, rising salaries and wages, changes in raw material prices, tax expenses and real estate cost inflation, the survey said.

"For manufacturers, the seemingly endless supply of low-cost unskilled labour may be approaching its limits," Norwell Coquillard, chairman of AmCham in Shanghai, told reporters at a briefing to launch their annual white paper.

"The competitive labour market poses difficulties for export-oriented manufacturers, especially in low-margin sectors such as toys, garments and shoes," and "they are looking to India, Vietnam, and other places," he said.

Human resources constraints, inconsistent regulatory interpretation, unclear regulations, lack of transparency and bureaucracy are picked as the top five business challenges in China, according to the white paper.

But companies still see China as a strategically important manufacturing base because of its domestic market potential, it said.

It added that 74 percent of companies were either profitable or very profitable in China and 89 percent of respondents had an optimistic or slightly optimistic outlook for the next five years of doing business in the country.

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