China is losing its edge as the world's cheapest place to manufacture goods, according to a new report by KPMG.
Indonesia and Bangladesh are benefiting most as rising costs in China force firms to switch production.
The report says that minimum wage levels in China are now four times greater than other places in South and South East Asia.
However, the report says China can defend its position because of its productivity and infrastructure.
China is still dominant in the production of goods such as consumer electronics and furniture.