23pc of industrial firms losing money

PUBLISHED : Friday, 27 July, 2012, 12:00am
UPDATED : Friday, 27 July, 2012, 12:00am


Almost a quarter of Guangdong's industrial companies are suffering losses - more evidence that the mainland's traditional export hubs are gradually losing their competitive edge in these tough economic times.

Businesses in the province, a major manufacturing base for products ranging from furniture and electronics to garments, are plagued by falling export demand, rising labour costs and more competition from the inland provinces.

Total profits at Guangdong's larger industrial companies slumped 19.2 per cent in the first five months from a year earlier, Xinhua reported - far more than the 2.4 per cent dip in profits at industrial firms nationwide with at least 20 million yuan (HK$24.3 million) in annual revenue. About 22.8 per cent of the province's industrial firms lost money in the period, and the combined losses were double those made by such companies a year earlier, Xinhua said, citing a report from the province's National Development and Reform Commission. Firms lacked confidence about a recovery in demand, while the local job market was also under pressure, the economic planning agency said.

Furniture companies, which employ seven million people in the province, 'basically don't make money', because of sluggish demand and rising costs, Xu Xiu, deputy secretary general of the Guangdong Furniture Chamber of Commerce, said.

'I'm not optimistic. The industry's outlook may deteriorate further, as demand is cooling across the country,' he said.

About 10 per cent of furniture makers in the province have been forced out of business, he said. Weakening demand from Europe and the United States and exchange rate fluctuations have added to the pain, as about 30 per cent of the companies ship their goods overseas.

Wages and benefit payments have soared 10 to 15 per cent this year, prompting many furniture makers to shift production to inland cities such as Chengdu, Sichuan, where labour costs are much cheaper, Liu said, calling it 'an inevitable trend'.

The minimum wage in Guangdong was set last year at 1,300 yuan a month, compared with 1,080 yuan in Henan and 850 yuan in Sichuan, according to data provided by the Ministry of Human Resources and Social Security on its website.

In the first half, Guangdong reported gross domestic product growth of 7.4 per cent. The expansion was below the mainland's 7.8 per cent and also trailed that of many other provinces, such as Guizhou, which grew 14 per cent, and Hubei, where the economy expanded 11.7 per cent.

In March, Premier Wen Jiabao set the nation's economic growth target at 7.5 per cent for this year, the lowest in eight years, signalling the leadership's aim of decelerating the economy's breakneck expansion from an average annual growth rate of 10 per cent in the past decade.

The government has pledged to reduce the focus on exports, boost consumption and services and cut down on pollution.

As part of Guangdong's efforts to cope with its challenges, the province announced on Wednesday in Guangzhou that it was launching a trial programme to encourage private capital to enter the financial services sector and develop its capital market to help small businesses raise funds more easily.