Tide turns against small businesses
Updated: 2011-10-27 07:52
By Qiu Quanlin (China Daily)
GUANGZHOU - Guo Zhuliang took a deep breath and shook his head as he talked about his company.
"We have 33 injection molding machines. But less than half of them are operating due to reduced orders. I am really worried about the future," said Guo, a production manager at Huijun Plastic in Foshan, a manufacturing city on the Pearl River Delta.
Guo's concern followed the closure of another plastic company, also located in Foshan, whose boss ran away on Aug 19 without paying wages to more than 1,000 workers.
"Declining orders, the increased cost of labor and a shortage of funds have forced us to lower production capacity," he said.
The company earned at least 10 yuan ($1.57) per product in 2000, when it was established.
"But now we earn less than 2 yuan. We don't have a bright future if the situation continues," he said.
The bleak outlook is not confined to one sector. A number of private businesses, ranging from shoemaking, knitting and electronics to other traditional labor-intensive sectors, have been closed on the delta in recent months, the Southern Metropolis Daily reported.
In Huizhou, at least five shoe companies have stopped production since June after their bosses fled, the report said.
"We rely on orders signed last year to sustain production. We have had no orders since May," said a former quality control manager for Zhonghe Shoe, surnamed Xian.
The company, which has some 1,300 workers, was forced to stop production in July.
Sources with the Guangdong Economic and Information Commission said that more than a quarter of the businesses in the province have seen an increase in the cost of raw materials in September.
The commission said some 16 percent of enterprises in the province had also seen a dramatic decline in business orders in September.
An early survey conducted by the National School of Development of Peking University and Alibaba Group said average profits for small businesses on the delta are predicted to fall 30 percent this year due to the domestic and global trade situation.
More than 70 percent of the 3,000 surveyed small companies found rising production costs a huge challenge and nearly 80 percent said they had cash flow problems.
As a result, sources with the Guangdong Economic and Information Commission predicted that the province is expected to witness a decline in economic growth in the fourth quarter.
Guangdong, a major manufacturing hub in South China, set a target of 9 percent GDP growth this year.
Yan Jiacai, general manager of Yunfu Haojie Stone, said overseas orders have been dropping in recent years, especially since the start of this year.
"We have seen a drop of at least 40 percent this year due to weak overseas market demand," Yan said.
The company, based in Yunfu, one of the country's major stone manufacturing bases, purchases stones mainly from the Middle East, Fujian and the Guangxi Zhuang autonomous region.
"We have reduced purchases this year due to sluggish demand," he said.
Fewer overseas buyers attended the Yunfu Stone Fair last week.
"A number of orders were signed with overseas clients at last year's fair. But we were not so lucky this year," Yan said.
Falling overseas demand forced the company to focus on the domestic market.
But domestic demand has been affected by tightening policies in the real estate sector which hurt his company's business.
"Imagine how dire the business would be without the booming construction of hotels, offices and residential buildings."
Huang Liangfa, deputy general manager of Focus Technology, which operates a B2B website made-in-china.com, said the number of registered buyers had declined since the global financial crisis.
"Many Chinese manufacturers are joining us as another portal for shipping their products overseas. But the number of our registered buyers is declining," Huang told China Daily.
The e-commerce website, based in Nanjing, capital of Jiangsu province, has about 3 million registered Chinese producers.
Huang said major buyers still mainly come from the European Union and the United States, but this is showing signs of decline.
"Chinese suppliers are eying emerging markets such as Brazil and India, following declining demand in traditional European and US markets," Huang said.
His remarks were echoed by Liu Jianjun, a spokesman for the China International Import and Export Fair, often referred to as the Canton Fair, a barometer of China's foreign trade.
The number of buyers from the EU and US to the ongoing autumn fair is roughly the same as the spring session, Liu said, but there is growing interest from emerging markets.
Wang Haifeng, director of the International Cooperation Center affiliated to the National Development and Reform Commission, said many of the enterprises on the delta are involved in shadow loans or real estate businesses that they had trouble financing.
He also urged local governments to help the unemployed who are mainly migrant workers.
"In the long run, enterprises should invest more in research, design and sales to increase their competitiveness."
Sun Huayu, director of the China Center for International Monetary Research affiliated to the University of International Business and Economics, emphasized the necessity to regulate underground financing networks.
"Small businesses have been relying on such networks for a long time, and problems prop up when they cannot repay loans amid an economic slowdown."
Li Jiabao contributed to this story.