China’s Small Businesses Face Gloomy Outlook

Women sew clothes at a small workshop in the town of Zhugao in China's southwest Sichuan Province on Feb. 4, 2009. (Peter Parks/AFP/Getty Images)

Result from a new survey.

Small businesses in China are more pessimistic about the future than they were during the 2008 financial crisis, a new survey has found. Nearly three-quarters of those surveyed expect little, if any, profits in the next six months.

The research was done jointly by Beijing University and e-commerce portal Alibaba, centered on 3000 small businesses and some local banks in the Pearl River Delta in Guangdong Province, according to Beijing Morning News. The results have national implications.

Earlier this year the All-China Federation of Industry & Commerce surveyed small businesses and came to a similar conclusion: they found that the difficulties these enterprises face in production, management, sales and other areas are in some ways worse now than during the 2008 financial crisis.

Reports have also emerged of business owners in Wenzhou, Zhejiang Province, a highly developed economic area, “running away” due to an inability to pay their debts.

An Oriental Morning News article on Oct. 11 presented an exclusive investigation conducted by the Zhejiang government about “runaway” business owners. From January to September of this year, there were 228 such cases in Zhejiang, which is higher than same period in recent years. The affected businesses owe 14,644 employees a total of around $12 million in unpaid wages.

Media reports on the mainland have found that the fundamental difficulties of small and medium enterprises (SMEs) are due to unavailable loans or inadequate investment.

According to research by scholar and member of the Chinese National People's Congress Standing Committee Gu Shengzu, only around 10 percent of SMEs in Jiangsu and Zhejiang provinces can get loans from mainstream financial entities and 80 percent survive on private loans. However, the record high interest rates in private lending markets have almost cut off financing sources for most SMEs.

As Gu said during the 2011 APEC SMEs summit on Aug. 30 in Chengdu, Sichuan Province, “Around 10 percent of SMEs are transferring into large scale production, 20 percent are transitioning into producing other products, but many SMEs, around 60-70 percent, are facing serious survival difficulties.”

Economist Li Youhuan, a professor at the Guangzhou Academy of Social Sciences, told Radio Free Asia that financing is indeed very difficult for SMEs, but that’s not the direct or root cause

In reality it is production costs, including raw materials, labor, management and land costs, which have inflated drastically in the past few years, Li said. “At the same time, the international financial crisis caused the global market share for Chinese companies to shrink,” he added.

Gu Shengzu also said that a serious issue is the shortage of workers, which manifests in three areas. Not enough people can be hired: Hangzhou City in Zhejiang Province once wanted to hire tens of thousands of migrant workers, but only a few hundred signed up; insufficient worker retention; and the increased cost of labor: a survey done in 2010 shows that the average cost per worker has increased by 20 to 40 percent for SMEs.

Chen Naixing, director of the Small Business Research Center of the Chinese Academy of Social Sciences, believes that there is a 10-15 percent shortage of labor in the country, which means a similar percentage of businesses will shut down. He told 21st Century Business Herald that this is a result of market forces.

Professor Li stressed that the situation did not occur recently but was apparent in 2008 with manufacturing companies both large and small, especially those that require intensive labor, finding their profit margins squeezed significantly.

SMEs in China are companies that have sales of less than 4.7 million dollars and employ less than 100 workers.

SMEs play an important role in the Chinese economy. Around 75 percent of towns rely on SMEs for employment and 90 percent of new jobs are created by SMEs. At the same time, these companies provide 65 percent of patents, 70 percent of new technologies and 85 percent of new products.

Source from theepochtimes.com