The recent economic figures out of China are continuing to point to weak domestic demand. Experts say that means China still needs to drive its supply side reforms up a notch.

Foshan is one of China's biggest manufacturing hubs. But the southern China city was once burdened by excess industrial capacity as 90 percent of its economy was dominated by traditional manufacturing.

"In the worst days, we had more than 500 high-polluting ceramic firms. Trees and roads were covered by white dust that was a pollutant. The city was not liveable back then," said Bai Mei, Foshan Ceramic Industry Assoc. Secretary-General.

No pain no gain.

"We've been shutting down companies. It was painful. But it is important for the city's and the industries' long-term benefit," said Lin Wei, Guandong Yingpai Ceramics CEO.

Many companies in southern China are trading short-term revenue losses for long-term profitability.

Midea is a top home appliances maker in China. The company has shifted away from its low end outsourcing business, and has invested big bucks in R&D. Those efforts ate up 10 percent of the company's top-line growth in the first quarter of this year, but its bottom-line number surged 14 percent from a year ago.

"Home appliances production used to be a labor-intensive industry. We want to move up the value chain by investing in robotics and smart factories. It will be our main strategy going forward," said Fang Hongbo, Midea Chairman.

Foshan has been singled out by Chinese authorities as a study case for SOEs and municipal governments. The city has closed more than 1，300 low-end and high-polluting companies since 2006.

The process has been painful, but the transition translated into 15 percent growth in output from the local manufacturing sector last year. That helped the region buck the economic slowdown in southern China as it posted 8.5 percent annual growth in GDP.