Firms in Wenzhou facing tough times due to weak global demand

An increasing number of companies in Wenzhou, a key manufacturing and export region, have gone out of business, amid difficulties that are even "more serious" than the 2008 financial crisis, an industry leader said.

The alert came as Premier Wen Jiabao warned over the weekend that the economy still faces downward pressure.

Wenzhou, Zhejiang province, is often referred to as a hub of small and medium-sized enterprises.

But it has witnessed a rise in bankruptcies that is even "more serious" than the 2008-09 financial crisis, Zhou Dewen, chairman of the Wenzhou SME Development Association, said.

"We have about 3,000 members and more than 10 percent have closed down and about 20 percent are struggling," Zhou said.

Many SME owners requested financial assistance and advice from the association, he said.

Larger companies are also feeling the heat.

According to a report released by the financial and economic committee of Zhejiang Provincial People's Congress, 140 out of 3,998 large enterprises in Wenzhou closed in the first half of the year while 57 percent of those large companies cut production.

Zheng Zhe, general manager of the Zhejiang Gulifa Group, a Wenzhou-based toolmaker, said his company saw annual sales growth of about 30 percent in the past decade.

But "not this year", Zheng said.

The best-case scenario for the group, and its nearly 2,000 workers, is to stay afloat, Zheng said.

"It is a matter of survival. Orders keep declining, especially those from Europe, and local competition is fierce," Zheng said.

Tougher competition forced the company to cut the price of its products but material and labor costs have risen, Zheng said.

Ye Jianqing, chairman of Wenzhou Zhenqing Optical, has witnessed a similar trend.

"The price of our products keeps declining as China is no longer the only place with low costs," Ye said.

Wenzhou's shoemakers, once a major contributor to the local economy, are also suffering.

"Summer used to be peak season, but production lines are quiet like winter," said Chen Xi, manager of Wenzhou Dongyi Shoes.

The shoe exporter is expecting to make just 40 percent of last year's profits.

After a tour to Zhejiang province on Aug 14 and 15 and another to Guangdong, from Friday to Saturday, Wen called for measures to meet economic goals and warned that the economy could still face turbulence.

"Downward pressure is still a major factor and the slowdown may continue for a while," he said.

SME: Downward pressure still looms, Wen says

This will affect exports, and "the third quarter will be a critical period" for China to realize the year's trade growth target, Wen said.

The target is to expand foreign trade by 10 percent.

During the first seven months of this year, China's exports rose by 7.8 percent from a year earlier and imports increased by 6.4 percent year-on-year.

In July, export growth slumped to 1 percent, the lowest since 2009.

"It will be difficult to meet the 10 percent target," said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a think tank affiliated to the Ministry of Commerce.

An index measuring manufacturing activity, published by HSBC, fell to a nine-month low in August, signaling manufacturing may be contracting at a faster pace.

"Manufacturing may deteriorate further, until the end of the year, affected by a faster drop in new orders and no significant signs of improvement in the global economy," said Ma Jinlong, an economist and former director of the Wenzhou government's economic research center.

Ma added that policies, such as loosening restrictions on taxation and supporting the upgrade of products among medium and large-sized enterprises, will help.

During his trip to Guangdong, Wen said companies will get more support.

There are still many "negative factors that will affect stable economic operations in the second half" and the difficulties of stabilizing economic growth are "still relatively large", Wen said.

"Facing the current difficulties, we have to improve the operating environment for companies and enhance corporate confidence."

During the second quarter, the economy grew by 7.6 percent year-on-year, the least in three years.

The government has rolled out a series of measures to stimulate the slowing economy and provide support to companies, including expanding fiscal expenditure, improving loan procedures and lowering tax burdens for companies.

Some global institutions, including Bank of America and Deutsche Bank, reduced their forecast for China's economic growth in 2012 to 7.7 percent. Earlier this year, Wen set a target of 7.5 percent for GDP growth.

But Wen said "China's economic fundamentals haven't changed, conditions are good and these positive factors will help stabilize growth''.

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Xinhua contributed to this story.