China’s SMEs closing by the thousands; situation worse in recent weeks
By Sim Chi Yin 28 October 2008
Chinese factory owner Ma Ning has shrunk his business by a third and fired 1,000 workers over the past months.
But as the chill of the global financial storm sweeps into his eastern coastal city of Wenzhou, Mr. Ma wonders how many more he can trim.
His Kaiming Maoyi group - which produces shoes and spectacles for Europe, the United States and South America - has about 2,500 workers remaining at his 35 factories.
China, for years now the factory of the world, has skidded to its slowest growth in five years.
With fewer orders for made-in-China toys, electronics and clothes, the mainland’s exporters, who generated 37 per cent of the country’s gross domestic product last year, are bearing the brunt of the slowdown.
Already, industry watchers are using terms ‘financial tsunami’ and ‘domino effect’ to describe the wave of factory closures in the southern Pearl River Delta and eastern Zhejiang provinces, China’s manufacturing heartland.
Many exporters started to feel the crunch late last year, thanks to a hike in the cost of raw materials, the appreciation of the yuan and a tightening of credit as Beijing fought inflation. Labour costs have risen as well, in part due to a stricter labour law that kicked in on Jan 1.
Safety scares involving China-made food and products have also dented demand from buyers around the world.
For eight out of the first nine months of this year, according to government data, the pace of export growth has been slowing.
Official statistics show that 67,000 of China’s 42 million small and medium enterprises had already closed down in the first half of this year.
In Wenzhou, where indigenous entrepreneurship has mushroomed since China abandoned Mao for the market in the early 1980s, a local government survey found that by early July, some 8.1 per cent of the city’s 15,500 SMEs had shrunk by half or closed down, reported the Southern Weekend newspaper.
But businessmen say those figures appear to understate the situation on the ground, perhaps because conditions have worsened in recent weeks.
Mr. Ma, who has been in business in Wenzhou for 17 years, reckons that ‘three out of every 10 factories I know here have shut’.
The plight of China’s factories was dramatised last week when a series of toy and electronics manufacturers in Guangdong collapsed, starting with leading toy-maker and Hong Kong-listed Smart Union Group.
The credit drought of recent months is causing more suffering.
Responding to the cash crunch, China’s central bank on Thursday urged banks to increase loans to SMEs.
But by all accounts, things are going to get worse before they get better.
Ms Wang Tao, chief of the China economic research unit at UBS Securities, said: ‘The export sector is going to be hit much worse. In the first nine months of this year, it was still growing some 22 per cent. We’re looking at 8 per cent for 2009.’
Mr. Wang Zhiguang, vice-chairman of the Dongguan Toy Industry Association, told the Guangzhou Daily that as many as half of all toy manufacturers in the Pearl River Delta could go belly-up within the next two years.
That might leave as many as three million factory workers in southern China without work, said industry watchers.
Still, economics professor Wang Jun, director of the social science school at the Sun Yat-Sen University in Guangzhou, said: ‘Low-end companies which rely solely on foreign orders, yes, they will be badly hit.
‘But the others - those that are more high-tech and those which make for the domestic market - won’t be.’
That is cold comfort to those workers already laid off or soon to be laid off.
The official unemployment rate hit a three-year high of 5.5 per cent in May and is still climbing. But migrant workers who fill the factories in China’s manufacturing bases are not captured in the data.
In a meeting last weekend, the State Council, China’s Cabinet, made a rare reference to helping workers laid off from bankrupt factories with some form of welfare.
The authorities in Guangdong are reportedly thinking of setting up an emergency fund to insure workers against losing their wages in the event of more closures, the China Daily reported.
Giving workers cash handouts will help Beijing meet its all-important goal: ‘to maintain social stability’, said Prof Wang. But, he added: ‘If more and more factories collapse, there’s the question of whether this practice can be sustained.’
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Factory of the world hit by sharp fall in orders
China’s SMEs closing by the thousands; situation worse in recent weeks
By Sim Chi Yin
28 October 2008
Chinese factory owner Ma Ning has shrunk his business by a third and fired 1,000 workers over the past months.
But as the chill of the global financial storm sweeps into his eastern coastal city of Wenzhou, Mr. Ma wonders how many more he can trim.
His Kaiming Maoyi group - which produces shoes and spectacles for Europe, the United States and South America - has about 2,500 workers remaining at his 35 factories.
China, for years now the factory of the world, has skidded to its slowest growth in five years.
With fewer orders for made-in-China toys, electronics and clothes, the mainland’s exporters, who generated 37 per cent of the country’s gross domestic product last year, are bearing the brunt of the slowdown.
Already, industry watchers are using terms ‘financial tsunami’ and ‘domino effect’ to describe the wave of factory closures in the southern Pearl River Delta and eastern Zhejiang provinces, China’s manufacturing heartland.
Many exporters started to feel the crunch late last year, thanks to a hike in the cost of raw materials, the appreciation of the yuan and a tightening of credit as Beijing fought inflation. Labour costs have risen as well, in part due to a stricter labour law that kicked in on Jan 1.
Safety scares involving China-made food and products have also dented demand from buyers around the world.
For eight out of the first nine months of this year, according to government data, the pace of export growth has been slowing.
Official statistics show that 67,000 of China’s 42 million small and medium enterprises had already closed down in the first half of this year.
In Wenzhou, where indigenous entrepreneurship has mushroomed since China abandoned Mao for the market in the early 1980s, a local government survey found that by early July, some 8.1 per cent of the city’s 15,500 SMEs had shrunk by half or closed down, reported the Southern Weekend newspaper.
But businessmen say those figures appear to understate the situation on the ground, perhaps because conditions have worsened in recent weeks.
Mr. Ma, who has been in business in Wenzhou for 17 years, reckons that ‘three out of every 10 factories I know here have shut’.
The plight of China’s factories was dramatised last week when a series of toy and electronics manufacturers in Guangdong collapsed, starting with leading toy-maker and Hong Kong-listed Smart Union Group.
The credit drought of recent months is causing more suffering.
Responding to the cash crunch, China’s central bank on Thursday urged banks to increase loans to SMEs.
But by all accounts, things are going to get worse before they get better.
Ms Wang Tao, chief of the China economic research unit at UBS Securities, said: ‘The export sector is going to be hit much worse. In the first nine months of this year, it was still growing some 22 per cent. We’re looking at 8 per cent for 2009.’
Mr. Wang Zhiguang, vice-chairman of the Dongguan Toy Industry Association, told the Guangzhou Daily that as many as half of all toy manufacturers in the Pearl River Delta could go belly-up within the next two years.
That might leave as many as three million factory workers in southern China without work, said industry watchers.
Still, economics professor Wang Jun, director of the social science school at the Sun Yat-Sen University in Guangzhou, said: ‘Low-end companies which rely solely on foreign orders, yes, they will be badly hit.
‘But the others - those that are more high-tech and those which make for the domestic market - won’t be.’
That is cold comfort to those workers already laid off or soon to be laid off.
The official unemployment rate hit a three-year high of 5.5 per cent in May and is still climbing. But migrant workers who fill the factories in China’s manufacturing bases are not captured in the data.
In a meeting last weekend, the State Council, China’s Cabinet, made a rare reference to helping workers laid off from bankrupt factories with some form of welfare.
The authorities in Guangdong are reportedly thinking of setting up an emergency fund to insure workers against losing their wages in the event of more closures, the China Daily reported.
Giving workers cash handouts will help Beijing meet its all-important goal: ‘to maintain social stability’, said Prof Wang. But, he added: ‘If more and more factories collapse, there’s the question of whether this practice can be sustained.’
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