China - Chinese SMEs struggle to stay in business

HUAIBEI: In China, many small and mediums sized enterprises (SMEs) have over the past year been plagued with rising costs, labor shortages and financing difficulties. And some are still struggling to remain in business this year.

A factory in China's Anhui province produces bottled mineral water for the local market.

The company was among the first to promote the concept of healthy drinking water in this less developed inner province.

With a daily capacity of 140,000 bottles, the company hopes to expand production two-fold in two years' time, to gain a larger share of the market. It also plans to produce fruit juices, as well as sweetened and isotonic drinks in three to five years' time.

Zeng Haoxiang, manager, Anhui Hao Jia Food & Beverage Co, said: "Within three years we want our bottled water to be a household name in Anhui, and also to expand to nearby provinces such as Henan and Jiangsu."

But to do so, it needs to get access to easier financing.

"We'd need help and resources from the government. Hopefully we can seek some sort of joint development with the government," said Zeng.

Over the past year, it has been difficult for Chinese SMEs to obtain bank loans due to the government's tightened monetary policies.

Many had to turn to private sources of funding, where the high interest rates led many to ruin.

The rising costs of raw materials and labour has also affected profit margins.

Small and medium sized enterprises in China may have contributed massively to economic development and employment but due to rising costs this year, many have been forced to shut down or go out of business.

The situation is made worse by declining global economic growth and export orders, and rising competition.

There's an estimated 40 million SMEs in China, accounting for 40 per cent of the country's total employment.

Acknowledging the crucial role played by SMEs, the Chinese government recently agreed to provide tax relief, flexible credit policies, and support SME innovations.

The government has also launched a venture capital fund of US$2.3 billion to support SME start-ups.

But analysts have warned that SMEs are still fighting an uphill battle against high interest rates and taxes.

And if these localised drivers of engine growth aren't given the help they need, efforts to bolster growth in the world's number two economy might suffer a major setback.

- CNA/cc

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