Small- and medium-sized enterprises (SMEs) in South China's Pearl River Delta, the world's workshop, are facing a critical period of trying to survive the current global economic slowdown.
Cheng's plant, Long Run Industrial Co., Ltd., a Hong Kong-funded toy manufacturer with about 2,000 employees in Heyuan City, Guangdong Province, has managed to survive. However, nearly eight out of 10 of his toy exporting counterparts, largely small-sized and thus weak to resisting risks, had closed down.
"Higher costs for labor and materials at home, a stronger yuan and a stringent monetary policy have dampened our financial prospects," Cheng says. "This is the hardest year we've ever met."
At the toy plant, raw materials have risen about 40 percent so far this year over the same period in 2007. Worker's monthly salaries had doubled to an average of 1,200 yuan (175 U.S. dollars) from 2004 when the plant went into operation. In addition, the appreciation of the RMB, China's currency, devoured 3 to 4 percent of its profits. The plant exported about 25 million yuan (about 3.65 million U.S. dollars) of toys last year, largely plastic toys for McDonald's and alloy car models to Germany.
"We managed to survive, thanks to our size and loyal customers," Cheng says.
Toy makers are not the only businesses to have bad luck. Shoe makers and textile mills have suffered heavily as well in the Pearl River Delta.
Guangzhou Customs statistics showed that in the first half of this year, nearly one-half of shoe exporters became insolvent in the delta region. This left only 2,617 plants. In the first seven months, Guangdong garment exports were reduced 31 percent year on year, and the exports were valued at 13.3 billion U.S. dollars.
These businesses have one thing in common: labor intensive export-based processing businesses that earn trifling processing fees from foreign buyers. They accounted for 66 percent of export values in the province in the January to July period.
Nationwide, rising costs, the fallout from the U.S. sub-prime mortgage crisis, the appreciation of the RMB, and frequent natural disasters, such as February's snowstorms in the south and the May12 earthquake in Sichuan Province had added more pressure to small- and medium-sized export companies, even dealing some with deadly blows.