CHINA> National
Smaller players reeling from bale of bad news
By Zhan Lisheng in Guangzhou and Zhou Yan in Shanghai (China Daily)
Updated: 2008-07-18 07:56

There are other considerations, such as the region's unstable economic situation and the nascent logistics sector.

Ding Li, a researcher with the Guangdong Academy of Social Sciences, said many Hong Kong- and Taiwan- funded companies in the Pearl River Delta are in a situation similar to Leung's, especially those involved in labor-intensive sectors covering shoes, garments, toys, furniture, plastic products and hardware.

"If nothing is done by the government to reverse the situation, a growing number of labor-intensive firms in the Pearl River Delta, especially smaller ones with no more than 200 employees each, might close down or move out of the region," Ding said.

However, the researcher also pointed out that the larger firms will survive and will not easily give up their China operations.

Hard to quit

It is also unlikely that the current difficulties faced by the SMEs will last anything up to five years without the government stepping in.

"It is a difficult time, to be sure," Ding said.

"But it won't be easy for investors to just tear themselves away from the delta region's excellent infrastructure, convenient traffic, well-developed industrial chain of processes and logistics system."

Luo Bin, deputy director of the municipal economy and trade bureau of Dongguan, said the city can still afford to have a few thousand companies close down and relocate in one year.

Some of the city's companies also relocate part of their operations elsewhere and not many have moved out completely, Luo said.

For the city' administrators, the reason for the shutdowns and relocations is what matters most, he said.

"If these companies leave and complain downright about our worsening investment climate, then it would really spell trouble for the local economy," Ding said.

Citing government statistics, the official said 909 companies closed down last year, while 88 relocated. Both figures combined to account for 6 percent of Dongguan's total number of companies providing cross-border outsourcing services.

The number of relocations and closures is likely to increase from last year by, at most, 20 percent, he said.

Li Xinchun, a management professor with the Guangzhou-based Sun Yat-sen University, said in his analysis that when more closures take place, the government will have to be alert to their negative social impact and to issues such as unemployment compensation and training for re-employment.

Tough times

Of all the SMEs in China, export-oriented textile companies are usually thought to be the ones that suffer most.

Such is the case of the Weibang Airflow Spinning in the Xiaoshan district of Hangzhou city, Zhejiang province - as illustrated by the huge piles of cloth stacked up at the entrance to its factory.