Manufacturers squeezed, need State support

Updated: 2012-03-03 09:45

By Lan Lan (China Daily)

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BEIJING - China needs to lay a solid foundation for its "real" economy, including manufacturing and services, which has shown signs of hollowing out, a senior official of China's organization of private companies said on Friday.

The suggestions were made by the China Federation of Industry and Commerce - a non-governmental chamber of commerce that articulates the views of the country's private companies - in a proposal submitted to the upcoming National Committee of the Chinese People's Political Consultative Conference.

Zhuang Congsheng, vice-president of the federation, said the risks that China currently faces might evolve into a situation similar to the eurozone debt crisis if the tangible economy failed to be bolstered by efficient measures.

In recent years, a huge amount of capital has gone into intangible areas, such as real estate, as many enterprises closed their core businesses or merely kept them as a financing platform.

It has become a common view among Chinese business people that real business is now seen as inferior to financing, real estate and marketing, and that must be changed, Zhuang said.

However, unless the huge profits made by speculation in the real estate and financial markets are reduced, it will be difficult to draw capital back to real business, he said.

The average profit of real business was between 5 to 8 percent in 2011, with some enterprises registering profit of less than 1 percent, while the average profit of commercial banks hit about 22 percent over the year, according to the federation.

"Private companies, especially small operations, face great difficulties in obtaining financing. The reform of China's monetary system cannot satisfy the economic development," Zhuang said.

In the view of many experts, bank loans have mainly gone to large- and medium-sized enterprises and most small companies are under-funded.

A mere 15 percent of small companies in China are able to obtain bank loans, while more than half of them are battling tight finances, according to a survey of 380,000 small enterprises.

China's private sector, which has made a sizable contribution to the country's rapid economic development, is facing a slew of other challenges, including rising raw material costs, high taxes and difficulties in recruiting workers.

Zhuang urged the government to take measures to mitigate the taxes and reduce the other charges faced by the small- and medium-sized companies.

Meanwhile, Zhuang urged further openness in sectors dominated by State-owned enterprises, such as energy, finance, railways and infrastructure.

By the end of the third quarter of 2011, there were more than 9 million registered private enterprises in China, with funds of almost 25 trillion yuan ($4 trillion), according to the federation.