Pearl River Delta companies face severe crisis

Pearl River Delta companies face severe crisis

Export companies in the Pearl River Delta are losing their price edge and struggling to stay in business since Beijing began accelerating the pace of its currency's appreciation earlier this year.

Besides the rising yuan, small- and medium-sized enterprises (SMEs) in the region also face other unfavorable conditions, including a credit squeeze, increasing raw material prices and surging labor costs.

Although the Delta has not yet seen a wave of bankruptcies, the region's export-based economy faces a crisis as many firms fight to stay afloat, the Securities Times reported.

Some small-sized companies have already gone out of business on cash flow problems, while others have chosen to move to areas with lower labor costs, such as China's inland or other East Asian countries such as Vietnam and Bangladesh.

Struggling is the word Sun Li, executive vice chairman of Shenzhen SME Development Promotion Association, used to describe the plight of China's SMEs. Take the textile industry, Sun said. Every 1 percent the yuan appreciates leads to a 2 to 6 percent decrease in companies' sales margin.

According to Sun, member companies of his association saw profits decline significantly in the first quarter. If this trend continues, many companies will break even in the second quarter and see losses in the third.

1% 2% 6%

China's business press carried the story above on Monday.