Apr 30,  CNBC European Business,UK -  At the core of China¡¯s success is manufacturing; and if one area has traditionally been the country¡¯s factory district, it is the south-east province of Guangdong, especially with items produced in a high volume, such as textiles, toys and plastics. Ever since the early 90s, migrant workers from all over China have flocked to the province in search of work, turning its two largest cities, Shenzhen and Guangzhou, into urban sprawls. The province has benefited from its proximity to the coast and early preferential treatment from the government, but demographics are making it lose some of its edge in favour of China¡¯s other provinces.

The problem is that Guangdong simply isn¡¯t as cheap as it used to be. Over the last few years, the provincial minimum wage has seen a number of increases. As of 1 April this year, it increased by as much as 17.8%, ensuring full-time workers a monthly salary of up to €77 (CNY860) a month. Compare this to five years ago, when a worker was only guaranteed to earn two-thirds of this amount, and it is possible to see why factory owners are complaining about higher costs. Also, as affluence rises in the inland provinces, less people are prepared to leave their home and take up the unattractive life of a migrant worker. This means that some factories in Guangdong have been finding it difficult to find enough people ¨C an unthinkable situation a decade ago.

As a result, manufacturers are starting to look inland to find cheaper labour. ¡°You will find pretty much the same wages within one province. To find something cheaper you have to go to the next one along,¡± says Kenny Ho, head of research at Jones Lang Lasalle Shanghai. Central China in particular is going to benefit from this kind of shift; in the first three quarters of 2007, the six central provinces received €7.29bn of foreign investment. On top of the lower wages, it is still close enough to the coast to make it economical to transport goods there, and these areas are not built up enough to experience the frequent power shortages that have plagued the eastern regions

Ho highlights neighbouring Jiangxi province as one such place undergoing this kind of change. Cross the border from Guangdong to Jiangxi and you are in the city of Ganzhou. It is already a good size, at one and a half million people, but its real draw is the minimum wage ¨C only €43 a month, cheaper than Guangdong five years ago. Hiring people in the provincial capital, Nanchang, is only marginally more expensive. Famous as the place where the People¡¯s Liberation Army came into being, Nanchang lies along the China¡¯s important north-south and east-west railway lines.