China's SMEs face a bumpy ride

China's SMEs face a bumpy ride

MR DONG Yitao, a manager at a Beijing-based furniture-maker, is becoming more alarmed by the day with new orders drying up over the past month.

"Sales have been slowing this year, but the past month was particularly worrying. Our big sale in May got 50 per cent less revenue than last year," said Mr Dong, 37.

His company, with a staff of 400, is one of a mass of small and medium-sized enterprises (SMEs) in China's vast manufacturing sector suffering a sharp deceleration of late. Factory activity in June slumped to a nine-month low, a preliminary survey that tracks mainly SMEs showed yesterday.

This has deepened fears that the world's No.2 economy is headed for another downturn.

It could even miss its official 7.5 per cent gross domestic product (GDP) growth target for this year, with analysts at Barclays and HSBC cutting their forecasts for China's 2013 performance to 7.4 per cent.

Earlier this year, hopes were high that China was consolidating its recovery from last year's slowdown, which dragged down 2012's GDP growth to 7.8 per cent - the lowest level in 13 years.

But yesterday's flash HSBC Purchasing Managers' Index (PMI) reading suggested that manufacturers - particularly SMEs, who form the backbone of the economy and hire some 80 per cent of the workforce - are struggling more than before. They not only face a decline in external orders, but also faltering domestic demand - which China is relying on as a key growth driver this year.

The PMI fell to 48.3 in June from May's 49.2, falling further below the 50-point level separating expansion and contraction.

It was "weighed down by deteriorating external demand, moderating domestic demand and rising de-stocking pressures," said HSBC economist Qu Hongbin.

The slump in manufacturing could continue for a few more months amid weak demand, warned Central University of Finance and Economics professor Guo Tianyong.

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