China SMEs face failure as profit margins shrink

October 5, 2011 by the editorial staff of  Global Sources

Small exporters are struggling to survive as tight monetary policies, electricity shortages, the yuan appreciation and ballooning production costs eat into their profits.

A number of industry challenges are making it more and more difficult for China’s small and midsize manufacturers to survive. Industry experts suggest many factories could close in the next six months as margins are squeezed.

According to a government survey of 1,500 export-oriented companies in Zhejiang in March this year, 77 percent of suppliers said their profit margins either remained the same or declined over the previous month. This is despite the fact that at 80 percent of surveyed companies, orders increased or stayed the same.

Similarly, Economic Information Daily, which is affiliated with the Xinhua News Agency, reported a survey in which half of the interviewees recorded a decrease in profits. The survey was conducted by authorities in the provinces of Guangdong, Zhejiang, Jiangsu, Liaoning, Sichuan and Hubei.

Further, statistics show that the number of Hong Kong-invested factories in Guangdong declined 10 percent from 39,000 at the beginning of 2010 to 35,000 at the end of the year. Many of these makers were squeezed out of the industry due to rising production costs.

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