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Rumors of bankruptcy wave in Guangdong groundless

(People's Daily Online)

16:18, August 05, 2011

Rumors of a wave of bankruptcies among small and medium-sized businesses in Dongguan swept through South China's Guangdong province recently, sparking wild public guess over the operation of SMEs. But as Li Ganqiu, an official with the Dongguan Economy and Information Technology Bureau explains, the rupture of the capital chain due to bad inner management was identified as the culprit in the bankruptcy of two companies.

According to official statistics, Guangdong experienced a fall in industrial production, and corporate operation faced more and more uncertainties in the first half of 2011. But the overall situation of the industrial economy remained sound. It is said that the industrial economy in Guangdong in the second half this year will maintain a momentum of rapid growth. The supposed "wave of bankruptcy" in the Pearl River Delta Region and Dongguan is groundless.

SMEs suffer from profit shrinkage

According to Zhu Suiwen, deputy chief of the Statistics Bureau of Guangdong Province, industries registered smooth growth in the first half of this year, but some SMEs suffered operational problems due to factors such as weak overseas demand, tight budget and rising production and operation cost.

In regard to shrinking profits, He Zuoxian, deputy director of Guangdong Small and Medium-sized Enterprises Administration Bureau said that some SMEs were in industries with excess production capacities and cannot move the rising cost to others, which led to profit loss.

The labor-intensive industries in Dongguan, such as textile and garments, shoemaking as well as toy manufacturing, suffered huge losses and rising operating costs due to high labor costs. The aforementioned industries saw labor costs up by 12.6 percent, 24.4 percent and 14.7 percent, combined costs up by 10.8 percent, 12.6 percent and 12.4 percent, and profit down by 2.5 percent, 0.4 percent and 1.4 percent, respectively, since the start of this year.

Labor-intensive industries suffer slowdown

Zhu said that Dongguan did suffer a production slowdown and profit loss in the first half of this year, but statistics showed that corporate production was not as sluggish as it was during global financial crisis, and the rumor of a string of bankruptcies was baseless.

"The difficulties that enterprises in Dongguan are facing help form an effective mechanism that could accelerate the upgrade of the industrial pattern and raise market competitiveness," Zhu said.
Domestic SMEs face difficulties in financing

Insiders think that tight monetary policy is one reason that puts SMEs in a difficult position. In consideration of the fact that fighting inflation is still central government's top priority, loans to SMEs will still be a major problem. Even if SMEs get the loan, they still cannot afford the high financing cost.

He said that they had taken a series of measures to solve the difficulty of financing SMEs. The financing environment is gradually changing for the better. Small enterprises in Guangdong have gotten nearly 58 billion yuan while mid-sized enterprises got nearly 55 billion yuan of the increase in loans in the first five months this year.

Optimization of investment structure will bring industrial restructuring

Having gone through the test of the global financial crisis, enterprises of foreign economy and trade in Guangdong are more experienced in crisis management. But there are more difficulties for corporate transformation and upgrade. It is easy to find that those enterprises that pay more attention to innovation have registered sound economic returns. Brand innovation, exploration of innate potential and technological innovation are their magic weapons.

Cai Yunge, deputy director and spokesperson of the Development and Reform Commission of Guangdong Province said that provincial investment structure is being further optimized, investment in advanced manufacturing and modern service industries is growing rapidly, and the investment attraction has been further improved. Investment structure today will shape the industrial structure tomorrow. The optimization of investment structure plays a very important role in Guangdong's industrial upgrade.


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