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Government urged to help out exporters

By Xin Zhiming (China Daily)
Updated: 2008-09-24 07:20

For Guo Jian, chairman of Yufu Group, a medium-sized woolen sweater exporter in Jiangsu province, the business environment has become harsher than ever as the global economy weakens. Now he has to figure out how to cut costs and add value to his products to cope with the challenge.

Despite the almost 20-percent rise in the value of yuan since July 2005, which has raised export prices denominated in dollar, Yufu still maintains a profit margin of 5-6 percent.

"We have shortened the supply chain and cut delivery time to beat competitors," Guo said. "We also own independent intellectual property rights, which means we can sell at higher prices."

Many other businesspeople, however, can't maintain their competitiveness like Guo as global economic woes have cut demand for Chinese exports while the domestic economy is also slowing.

China's gross domestic product grew 10.4 percent in the first half of the year and is expected to further decline to around 9 percent in the coming months.

Making it worse, policymakers have tightened credit since second half of last year. As a result, many enterprises, including those from the Pearl River Delta to the Yangtze River Delta, both China's major economic powerhouses accounting for about 30 percent of the GDP, have been pushed to the wall.

In the Pearl River Delta, about a third of private enterprises are facing the danger of closure while a third are in serious difficulty, said Liu Pin'an, director of the macroeconomy institute of the Guangdong Academy of Social Sciences.

Elsewhere, it's even gloomier. Standard Chartered Bank (China) has forecast GDP growth in the fourth quarter could be as low as 9 percent, pulling the country's whole-year growth to 9.9 percent in 2008. The bank estimates China's GDP growth could further slow to 7.9 percent next year.

It forecasts the Chinese economic growth may slide to as low as 7.1 percent in 2010 before rebounding to more than 8 percent in 2011 and 2012. Many other economists agree to the prediction.

In the next two years, enterprises may have to bear the brunt of a slowing economy. Some have resorted to more flexible and cost-saving sales strategies while others have begun to tap new markets other than the US and Europe, such as South America and Ukraine.

Corporate efforts alone are not enough. The government has much to do to help enterprises survive the hard times, analysts said. It must give more support to private companies, such as tax cuts, so that they can contribute to the overall economy, Liu said. "It's time the government shows its hand."

Other policies are also needed in accordance with local economic conditions.

In Guangdong, the provincial government will put in 50 billion yuan in the coming decade to build industrial parks and improve infrastructure in less developed cities to accommodate industrial enterprises moving out of developed cities, such as Dongguan, where production costs have risen and some investors have opted to move to low-cost markets such as Vietnam.