Accompanying the report, E&Y released details of a new survey, carried out among more than 200 multinational companies in China, which showed 85 percent of the respondents said they could only pass less than a third of their own rising costs onto their customers.

The phenomenon is more obvious in manufacturing, where input prices have been growing faster than output prices, squeezing profits.

"Salaries have more than doubled here since 2007, and the minimum monthly salary increased from 1,300 yuan per person to the current 3,000 yuan," said Ye Shuhui, manager of Ningbo Jinfan Toy Co Ltd, which sells most of its products to the United States, Europe and Southeast Asia.

"We have literally no profits this year and are doing everything we can to avoid shutting down," said Ye.

In July and August this year, Ningbo Jinfan managed to land orders worth $2 million - encouraging, but still some way behind last year.

To make up the shortfall caused by increased costs, it has raised product prices by at least 30 percent, Ye explained.

"Given the uncertain global outlook, the impact of slowing revenue growth and rising costs will directly affect profitability, and companies must view productivity as a strategic imperative," added Nigel Knight, managing partner with E&Y advisory services

E&Y's survey found that 90 percent of the surveyed companies said improving productivity had become more important in the past two years, while the same portion said it would be their priority over the next two years.

"China has been enjoying massive growth in productivity, driven by people moving from a rural economy to an urban economy, foreign direct investment, a series of supportive government policies, as well as a good global economy," Knight said.

Contact the writers at weitian@chinadaily.com.cn and shijing@chinadaily.com.cn