Experts advise against major changes despite a challenged economy

Chinese enterprises, especially small and medium ones, are facing a harder time because of the combined effects of the global slowdown, tight domestic credit, rising costs and an appreciating yuan.

About 67,000 small and medium-sized enterprises (SMEs) went bankrupt throughout China in the first half of the year, according to National Development and Reform Commission (NDRC), the country's top economic planner.

Many of those that managed to stay afloat are desperate to cut costs, mainly through worker layoffs.

"Business is poor this year, especially since May," said Liu Yongcheng, a senior executive of the Zhejiang Adwin Furniture Co Ltd in east China's coastal province of Zhejiang. His company's exports to the United States have plunged, as American consumers tighten their belt amid the deepening housing and credit crisis there. Liu had to cut his workforce by one-fifth to 400, well below the factory's full capacity.

Large firms fared better, but only by a little. In the first six months, firms listed in the domestic stock market reported a 16.3 percent growth in profits year-on-year, a sharp drop from the 80 percent for the same period last year.

A look at Gross Domestic Product (GDP), the most important gauge of a country's economic performance, tells a similar story. In the April-June period, China's GDP growth slowed to 10.1 percent from almost 12 percent growth achieved last year.

As China's economic growth has declined for four consecutive quarters, many have predicted that growth may drop further in the second half of 2008, as the European Union, the largest destination for Chinese exports, draws closer to a recession.

Traditional wisdom has it that China has to maintain its growth rate above eight percent to keep its workforce employed.

Actually, SMEs employed 75 percent of the country's workforce and created 85 percent of new jobs each year, contributing substantially to the country's economic well-being.

That's why decision makers are coming to the rescue with a host of measures, including encouraging commercial banks to make loans to SMEs by raising their credit quota.

The Beijing authorities have signaled on several occasions that they will give greater weight to keeping stable economic growth, while staying vigilant against inflation. That marked a departure from the official stance, at the begining of the year, of preventing the economy from overheating and preventing price increases developing into full-scale inflation.

As part of the efforts to ease pressures on exporters, the central bank slowed down the appreciation of the yuan, which even depreciated against the dollar since the beginning of August.

The deceleration came after the Chinese currency jumped 6.6 percent against the greenback since January and more than 20 percent since July 2005, when China ended the yuan's peg to the US dollar.

Source: China Daily