The world is facing a financial crisis, as large numbers of small and medium enterprises (SMEs) throughout Southeast Asia face bankruptcy.  More than 20% of SMEs in Vietnam are on the edge of bankruptcy, while SMEs in Korea are going bankrupt because of increasing difficulties in obtaining loans from banks that are haunted by unrecoverable bad debts (especially the SMEs located in China that were invested by Korean enterprises).  China has seen about 67,000 SMEs collapse in the first half of this year.  The past 5-10 years, a total of 1.4 million SMEs have gone bankrupt.   

The textile and toy industries have been hit the hardest by this financial crisis.  The textile industry requires resources for their labor intensive workforce while the toy industry is experiencing a decrease in demand on non-daily necessities.  For example, Hejun, the nation’s third largest toy factory in Dongguan, Guangdong Province, suddenly went bankrupt.  On the other end of the spectrum, the clothing industry, has not lost their marketability by sustaining fundamental market support and continue to remain safe from Bankruptcy. 

There are macroeconomic regulations and control in China.  The government wants to adjust industry structures rather than let the SMEs fail. China’s 2007 “Industrial Catalogue for Foreign Investment” and the new Labor Contract Law (created in January of 2008) shows that the government is determined to adjust industrial structure by transferring the primary manufacturing industry to a low-end manufactory industry that can sustainable development with high added value.  The Central Bank of China has cut loan rates and deposit reserve ratios to support SMEs.  Recently, it has been said that the Central Bank will not limit their loans if they are made to supply for agriculture, SMEs, and post-disaster reconstruction.  We’ve also seen the local government try to support SMEs because they bring tax revenues and provide jobs for local people.  After the local government of Dongguan paid salaries owed by Hejun to its employees, other governments around the country have followed in their footsteps and become more active in offering more capital support to avoid bankruptcy of local enterprises.

The bankruptcy wave is only natures way of industry development.  The successful industries will excel and not face bankruptcy involving SMEs.

Authored by:

Raymond Tan