By Chinese media writer Wu Qi
BEIJING, Dec. 6 (Chinese media) -- Tang Keshuai has been down in the dumps for
months, ever since he began to feel the pinch of a constrictive money supply
since mid March.
Tang, manager of Langyu Plastic and Rubber Co. Ltd., a plastic and rubber
product producer based in east China's Wenzhou, Zhejiang Province, used to
settle his accounts with raw material suppliers once every four months, on the
traditional Chinese lunar festivals of Dragon Boat, Mid Autumn and Spring
Festival respectively.
But the rule was changed in mid March when raw material suppliers asked for
accounts to be settled once each month. The change was not a good one. The
original four-month span allowed Tang to have sufficient active money in his
capital chain.
Capital pressure from upstream was one part of the story. Tang received
smaller orders over the past months. In the first three quarters, Tang's company
had only 3 million yuan (439,090 U.S. dollars) sales turnover, compared with 20
million yuan in 2007.
Tang had to dismiss 30 out of the 50 staff workers in August and
transferred most orders to other plants, in order to lower production costs by
10 percent.
Tang was amazed to find it hard to transfer the orders. "I felt curious in
the beginning why it was hard to seek processors, since orders became fewer on
the market," said Tang. Longgang Town, home to Tang's company, currently has
only about 100 plants of his type, while there were about 600 such plants a year
ago.
In early June, Tang's company had almost exhausted its supply of cash, with
only 200 yuan left in the account. Tang had nothing else to do except to driving
his three-year-old daughter to the kindergarten. Two days later, he had to
borrow money from his sister to "have meals". He continued for 10 days, and only
pulled through the crisis when a Russian client remitted 30,000 U.S. dollars to
his account.
"I was lucky to stick it out. But many companies have closed down because
of a broken capital chain," said Tang.
During the current Wall Street-ignited global financial crisis, China's
small and medium-sized enterprises (SME), largely labor-intensive and vulnerable
to fluctuations in domestic and external demand, are affected most.
In the first half of 2008, 67,000 SMEs, each with sales income exceeding 5
million yuan, closed down, laying off more than 20 million employees, said the
National Development and Reform Commission (NDRC).
The figure didn't include service industry firms and SMEs whose sales were
less than 5 million yuan, since there were no authoritative figures available on
those categories.
Industry officials attributed the SME difficulties mainly to high raw
material prices (leading to higher production and operation costs), financing
difficulties, sharp export plunges and RMB appreciation.
Data from the China Association of Small and Medium-sized Enterprises
(CASME) showed that compared with the second half of 2007, the country's SMEs
have suffered a 20-percent rise in labor costs, an 11-to-15-percent rise in raw
material costs, and a 40-percent rise in borrowing costs. But the average
product ex-factory price is up only about 5 percent. These factors, accompanied
by surging land prices and the appreciation of the RMB, have almost pushed SMEs
to the limit.
SMEs are an important pillar of the Chinese economy. More than 95 percent of the 4.3 million SMEs are privately owned and many are in the export sector. They generate almost 60 percent of the nation's gross domestic product (GDP), 50 percent of tax revenues, 68 percent of exports and 75 percent of new jobs every year.
[1] [2] [3] [4] [5]
FIGHTING FINANCIAL PLIGHT
Difficulty in raising capital has become a critical bottleneck to the
growth of SMEs.
"A broken capital chain is deadlier than reduced orders," said Zhou
Zhiming, board chairman of Shengda Clothes and Toy Corp, based in Dongguan City,
south China's Guangdong Province. "We have to pay cash for raw materials these
days. We may carry on with reduced orders. But without operating funds, we will
die a sudden death."
SMEs like Zhou's largely have two channels to solve the pressing financing
problem - taking loans with banks or borrowing loans on the black market at high
rates.
"Bank loans are made under too rigid conditions. We have to hold in pledge
our production lines and factory buildings, which are discounted in evaluation.
We will wait for at least one month to get the loans," said Zhou.
Different from their overseas counterparts, which directly finance about 70
percent of their funds on the capital market, Chinese SMEs have only two percent
of their funding needs met on the capital market. SMEs mainly depend on bank
loans for the rest.
However, commercial banks, with quite strong risk-aversion sentiment, are
cautious about lending to SMEs.
According to Li Zibin, head of CASME, SME loans made up only 15percent of
the total in the first half of this year. "It is obviously out of proportion."
Pudong Development Bank assistant general manager Xu Baolin said Chinese
banks are actually paying close attention to the operation of SMEs. Under the
current condition of financial tsunami, banks are inclined to extend loans to
SMEs with markets and competitive products.
"We have to take aim at usurious loans from the black market. We might die
faster with such greater risks," said Zhou.
The country has sought to help troubled SMEs with better access to loans.
China has now turned to an "active" fiscal policy and "moderately easy"
monetary policy, a transition from earlier "prudent" fiscal and "tight" monetary
policies that aimed at curbing inflation and averting economic overheating of
earlier days.
"The new policies will further ease the financing difficulty of SMEs," said
Yi Gang, vice governor of the People's Bank of China (PBOC), the central bank.
On Nov. 9, the State Council, the county's Cabinet, unveiled a
4-trillion-yuan stimulus package to stimulate domestic consumption and growth.
One of the 10 major steps was to abolish loan ceilings on commercial lenders,
partly to enhance financial support to SMEs.
The preferential policy came in the wake of a decision of the PBOC in
August to raise this year's credit quota by 5 percent for national commercial
banks and 10 percent for local commercial banks, which was aimed at easing the
financial difficulties of SMEs.
In order to cool down the country's previous overheating economy and curb
inflation, the PBOC strictly controlled its credit quota since the autumn of
2007.
Following canceling loan ceilings, the PBOC slashed the lending and deposit
rates by a bigger-than-expected 1.08 percentage points as of Nov. 27, the
largest cut since October 1997.
It was the fourth time the country cut lending rates since mid September, to reduce enterprises' financing costs and boost their investment optimism.
[1] [2] [3] [4] [5]
Posts
No comments:
Post a Comment