When Steven Du took over his parents' factory producing temperature control systems in Shanghai, one of the first changes he made was to turn on the plant's heating in winter — something his frugal forebears were reluctant to do.

"If you don't improve their environment, the workers aren't as happy and it's harder for them to do their best work," the 29-year-old said. "The change is worth the extra cost."

Du, like tens of thousands of other young Chinese factory bosses, is inheriting a basic manufacturing business that can no longer rely on the labor-intensive model that made China the world's largest exporter of goods.