China economy

Entrepreneurs adapt to the brave new world of diversification

Examples of the effort being made by thousands of small businesses to not only survive, but thrive amid tough times

PUBLISHED : Friday, 24 June, 2016, 9:31pm
UPDATED : Friday, 24 June, 2016, 9:31pm

Restructuring and diversification have become the new buzzwords for China’s entrepreneurs, as they reshape their businesses to match the government’s new economic model of more sustained, less-industrial-led growth.

As the slowdown eats into their profits, mainland companies — from large-scale property developers to mom-and-pop shops — are being forced to seek new opportunities to keep their businesses afloat.

“It’s a do-or-die moment,” said Paul Meng, a 41-year entrepreneur.

“Some small companies are dying and the dire scenario is hurting many business owners’ morale.”

Meng, who formerly owned a small firm dealing with home decoration, opened a restaurant business last year in what he described as a “desperate move” to survive the slowdown and adapt to China’s economy transition.

That shift in economic priorities by Beijing started in late 2012, when it said the “New Normal” would be slower but sustainable growth, with a focus on consumer spending rather than investment and exports.

Meng said the knock-on effect of that change on his business was huge.

“I was owed large payments by clients after completing a lot of decoration work,” he said.

“I decided it was time to do something new, and something with stronger cashflow.”

China’s economy expanded 6.9 per cent in 2015, the slowest pace in 25 years.

But the real situation facing businesses appears to be much more serious than economic numbers.

The cost of closing down a business is much bigger than you can imagine
Qian Kang, a Zhejiang entrepreneur dealing in auto parts

State-owned industrial juggernauts are under pressure to clear excessive stockpiles amid dwindling industrial demand for raw materials, while small businesses, plagued by rising land and labour costs, are simply desperate to avoid growing losses, or even to survive.

As more clients failed to pay back that they owed to him, Meng said he started turning away business as his own bills and overheads mounted.

“We didn’t have enough funds to replenish the business,” he said.

“If the banks granted us loans, we only took new orders that represented relatively low risk.”

Anecdotal evidence shows lots of small businesses are still below the “break-even” threshold, and more are having to find new ways of turning around their fortunes.

“The cost of closing down a business is much bigger than you can imagine,” said Qian Kang, a Zhejiang entrepreneur dealing in auto parts.

“You have to compensate workers and pay huge amounts to dismantle production facilities.”

As the leadership continues to advocate its new “Internet Plus” strategy – taking advantage of the latest IT technologies to enhance business efficiency and expand sales channel – small businesses are again following its direction, this time to go digital.

“Putting advertisements online is easier and cheaper,” said Meng.

“But we still need to spend more time and money studying how to use mobile technologies to do businesses.”