Wenzhou is the birthplace of China's private economy as a producer of tangible goods.

Municipal government officials in Wenzhou, Zhejiang province have denied speculation that the city faces the loss of its manufacturing base, as factories close and funds are diverted into capital investment.

"The factory closures are not as severe as is being reported by the media, and the city will never be deserted just because fewer factories are making goods for both the domestic and overseas markets," said Huang Shoujun, director of the Small and Medium-sized Enterprise Department at Wenzhou Economic & Trade Commission.

Wenzhou, which became the birthplace of China's private economy as a producer of tangible goods, is now a center of investment. Recently, there have been media reports of businesses moving their operations out of the city, posing the threat that Wenzhou will lose the advantage of being China's prime manufacturing base.

"Private businesses in Zhejiang, Wenzhou in particular, now allocate their money this way: One-third for manufacturing; one-third for real estate; and one-third for financial investment," said Zhou Dewen, chairman of the Wenzhou Council for the Promotion of Small and Medium-Sized Enterprises.

Last year, more than 2,000 enterprises in the city closed down, more than half of them were involved in manufacturing.

Zhou said it's not surprising that private businesses are shifting from manufacturing to investment, given that capital chases profits, and profits are running at 30 percent or more at present.

Reacting to the news that the city faces the risk of losing its manufacturing base, Huang said that it is natural for some businesses to close during a period of economic transformation.

"As labor is not as cheap as it was and inflation is squeezing profit margins, it's not surprising that a few small enterprises have failed to handle their financial problems. However, that shouldn't be recognized as a common phenomenon in the city, " said Huang.

China's 12th Five-Year Plan (2011-2015) aims to transform the nation's labor-intensive manufacturing economy into one based on technology and innovation. In December, the Wenzhou municipal government released a document in which it discussed upgrading the economic structure and, controversially, raising the costs of raw materials, export licences and land use.

"Although more manufacturers turning to real estate seems to be a bad sign ... we could also see it as a business transformation, as manufacturers use their earnings to make even bigger profits," said Ma Jinlong, an economist and former director of Wenzhou's People's Government Economic Research Center, who is quite optimistic, based on his view of investment as a step up from industry.

Ma added that the fact that major manufacturers have been tempted to leave the city for expansion purposes shouldn't be seen as a major problem.

According to a survey carried out by Wenzhou's Economic & Trade Commission in March out of 855 local enterprises, more than 90 percent have outstanding orders to be fulfilled, and 23.9 percent of them have orders which must be completed within three months.

"The growth of small and medium-sized enterprises in Wenzhou has slowed, when compared to recent years, but the rate is still high enough to meet the adjustments of the industrial upgrade, " said Huang.