From the Caijing Annual Conference

As the global economy stumbles, China’s enterprises are facing increasing difficulties dealing with rising costs and declining demand. Many small and medium sized businesses have already closed, while the rest are figuring out how to survive.

At an economics conference organized by Caijing, businessmen and experts discussed the risks that enterprises face amid the current financial crisis and the strategies to deal with them. The conclusion was that companies can only save themselves by internal improvement.

Harsh Times

Private enterprises, which account for a large proportion of Chinese companies, are facing their greatest challenge after two decades of rapid development according to Bao Yujun, chairman of the China Private Economy Research Institute.

At the 2009 Caijing Annual Conference on December 13, Bao said that China’s private businesses are currently growing slower than at any time in the past 20 years. In seven provinces private sector employment has seen a decline in the first half of this year.

At the same time, a large number of small and medium sized companies in the Pearl River Delta region and Yangtze River Delta region, which have been the most active industry centers during the past decades, have been forced to close down.

Bao Yujun said China’s enterprises have been hurt badly by rising costs and the shrinking market. But more significant challenges are policy constraints and internal company flaws.

Chinese enterprises are lacking effective risk warning systems, said Zhang Kehui, Chief Financial Officer of China’s largest coal producer, Shenhua Energy. According to Zhang, failing to predict the crisis and subsequently not responding effectively are the two basic problems that companies are suffering from.

From the beginning of this year, a number of manufacturing enterprises in Yangtze River Delta were reported to have been under financial distress. Some of the troubled companies were even flagships in the local economy.

According to Li Kunyao, president of Taiwan-based BenQ, high reliance on debt and over-expansion were the main factors behind the companies' problems.

Yang Minde, chairwoman of textile and garment producer Esquel Group, said that "neither yuan appreciation nor declining market demand is fatal to textile companies, because they can be offset by internal cost reductions. However, inefficient internal management will push a company to bankruptcy."

Challenge and Opportunity

Both entrepreneurs and experts agreed that Chinese companies are suffering their toughest challenges yet. But they also believed that the current crisis may provide a good opportunity for companies to secure future growth by improving internal operations.

BenQ’s Li Kunyao said that to face the current economic crisis, companies should first reshuffle and optimize their assets in order to improve operational efficiency.

Citing his experience in dealing with previous economic turmoil in Taiwan, Li said that BenQ overcame crisis through controlling internal costs and production innovation. The company also took chances to acquire assets in the weak market to boost future business development.

According to Yang Minde, the Hong Kong based Esquel has taken steps to further penetrate the mainland market, as under current market conditions most foreign rivals are slowing down their pace of business expansion.

Under the current economic crisis the director of Deloitte China, Lu Boqing, called Chinese enterprises to review and adjust their business structure in order to enhance competitiveness.

Lu argued that when the economy slows, enterprises should focus on core business and improve cost control, as well as adopt prudent financial strategy. "Although there are many uncertainties during economic turmoil, we should also understand that there is no eternal winter," said Lu, "enterprises should use current difficulties as a good opportunity to develop capacity for the future.”