High-end manufacturing holds the key

Andrew Heath, director of the international marketing division of Shenyang Machine Tool Co Ltd, China's largest machine tool producer, said China's manufacturing strength lies more in its established supplier network.

"Those who are talking about relocating units do not know the basics of business. It is not so easy to relocate these plants," he said. "We need to have natural resources. We have to purchase and have a supply chain. Since we have the huge market here, why would I even consider moving?"

Tim Hanley, global leader of the Global Manufacturing Industry group of Deloitte Touche Tohmatsu, said that China is driving efforts to bolster advanced manufacturing knowledge and capabilities.

"If China wants to climb up the pyramid of the manufacturing world, it has much to consider besides labor costs," he said.

The best example is labor productivity, as Chinese workers generate just $14,200 worth of value per year, far below the global average of $33,000. By comparison, German workers generate $43,300 worth of value per year. In terms of innovation capacity, China has 1,071 researchers for every million population. The global average is 2,980, while Japan's is 7,038, the highest.

China's poor performance in these areas has also led to a low score in "talent-driven innovation", which Deloitte said is a leading indicator of a country's competitiveness. China scored 5.89 in this category while Japan scored 8.14 and the US scored 8.94.