Further, most of the long-established overseas-backed factories in the Delta, which were export-oriented, saw profits dwindle as the central government repeatedly slashed export rebates to prompt economic transition.

"To flee the Pearl River Delta has become inevitable when there is little profit to make or not any profit at all," said Ding.

Yin Yong, deputy chief of the trade and industry department of Shenzhen City, believed that the industrial structure in the Delta had improved: from labor-intensive to technology-intensive and from sweatshops to the services and high-technology sectors.

Although Delta cities have lost smaller overseas ventures, they have still seen growth in paid-in foreign investment in the past two years.

"The closure or flight of small and medium-sized overseas ventures has, in a sense, opened up space for development on the part of big companies," said Yin.

According to Yin, Shenzhen approved 243 overseas-invested projects last year, with each investment exceeding 10 million US dollars.

In the conventional manufacturing sector, previously strong overseas companies have grown bigger during the industrial transition. For example, Sewco Toys, a Hong Kong-invested venture, planned to continue expanding this year and adding 5,000 people to its 10,000-strong payroll.

"In the long run, China's advantage should be the opportunity for more innovation instead of cheap labor," Yin added.