Two Ukrainian businesswomen check the quality of the fabric at Dongyang International Sewing Machines City in Zhejiang province in October. [Photo / China Daily]

In the early stages of China's economic boom, Zhejiang province was one of the areas where private export businesses first started to develop.

In those days, the Zhejiang provincial government offered guidance and supportive policies in an effort to boost the private sector economy. Since China joined the World Trade Organization (WTO) a decade ago, 90 percent of new local companies have been privately owned.

The people in this eastern coastal province who have benefited most from China's admission to the WTO have been the owners of small and medium-sized enterprises (SMEs).

Ningbo, a port city in Zhejiang, is a good example of this boom. According to statistics from Ningbo city government, the volume of the city's import and export trade soared from $8.9 billion in 2001 to $82.9 billion in 2010. Exports alone increased from $6.3 billion to $52 billion in that period. The total volume of import-export trade this year in Ningbo is expected to exceed $90 billion, 10 times that of a decade ago.

"Ten years ago, we used to face limits on exports to Western countries, including the United States and Germany, but after China joined the WTO, we've been able to take advantage of our competitive prices without being limited in how much we can trade," said He Zhixian, manager of Ningbo Qingfeng Yarn-dyed Fabric Co Ltd, which was founded in 1988.

He said private export enterprises made the right decision when they quickly expanded their companies in response to the increase in international orders that occurred during the last decade.

Statistics from the Zhejiang provincial government show that the volume of exports and imports exceeded $134 billion last year, increasing 42.2 percent from 2009 and amounting to 53 percent of the total trading volume for the whole province.

Countries from the European Union remain the top trading partners for Chinese enterprises, with export-import volume exceeding $57 billion last year.

Sun Shaoding, the owner of Zhejiang Fukang Group, which supplies packing services and rich color-printing materials in Wenzhou, is proud to have been part of the trading boom.

"Being a private enterprise in a coastal city, we've enjoyed advantages in being the first batch of businessmen in this century to have the chance to make direct deals with overseas clients," said Sun.

Sun's company saw an average annual increase in profits of 20 percent over the last decade, a period when it expanded its business to overseas markets including developed European countries such as France, Germany and Sweden.

"Due to the relatively cheaper costs of raw materials and labor, we've been able to offer clients prices lower than manufacturers from other countries," Sun said.

For many private businessmen in Zhejiang province, being allowed to become successful exporters has enabled them to make their names known abroad.

"Seventy percent of our products are sold to the US while the rest go to European countries, and this has brought us an average annual export volume of $3 million over the last five years," said Zhou Mingwang, the founder of Yiwu Mingwang Jewelry, a small export enterprise in Wenzhou, a coastal city in Zhejiang known for its buoyant private sector.

Zhou said his current plan is to upgrade the quality of his products to meet the requirements from more high-end brands in Western countries and then make more profits from higher prices.

However, demand for products from China has decreased since the global financial crisis in 2008. In addition, with inflation and the cost of labor and raw materials rising, SMEs that produce labor-intensive products have begun to lose competitiveness and face financial problems.

In response, some entrepreneurs in Zhejiang have looked inward for ways to continue their development.

"We've moved part of our focus from overseas to the domestic market since the global recession that affected economic growth in Western countries in 2008," said Zhang Guanjin, the manager of Shaoxing Jinyong Textile Co Ltd, which sells to both the overseas and domestic markets.

Zhang has successfully shifted more than 30 percent of his company's export business to the domestic market. Its total export volume in 2010 was $30 million, with domestic sales at $11 million.

"With the increasing costs of labor and raw materials as well as tightened bank loan policies in China, reducing international orders and accepting limited profits is our only choice," said Zhang.

Industry insiders said that to solve the problem, more supportive policies need to be introduced to help SMEs out of their difficulties.

Businesses in Wenzhou, where the government is cracking down on underground banking, recently experienced a severe capital shortage amid the country's tightening economic policies and the slowdown in the global market. The city's huge underground banking industry nearly collapsed when more than 90 companies closed down and a few business owners committed suicide in late September.

In reaction to the credit crisis in the city, the local government has released a draft plan for financial reform, according to Xinhua News Agency.

The plan aims to regulate the private financing system and build the city into a financial development area. According to the plan, the number of small-loan lending companies will be increased from 30 to 50 by the end of this year, offering loans worth about $2 billion. The number of these companies will reach 100 by the end of 2012. Five new authorized agencies will be launched this year to offer private loans specifically to SMEs.

In addition, by the end of the year entrepreneurs will collect the first round of a private equity fund for Wenzhou enterprises, which will be worth about $32 million.

These funds will be used to launch a private equity investment association, which will attract investment from all over the country to support Wenzhou businesses. This will increase private capital in the city and boost the local economy. Details of the plan are still being discussed and will be released soon by the local government.

"The decrease in international orders and the 30-percent increase in labor and material costs have put pressure on SMEs," said Zheng Chen'ai, the chairman of Wenzhou Chamber of Clothing Commerce.

"The local government in Wenzhou is also encouraging companies to look for better opportunities abroad."

Zheng added that SMEs must face these challenges, including tighter government financial policies, and only the most competitive businesses will survive.