SMEs sees growth rebound despite struggle to survive

China's small and medium-sized business sector saw a rebound in growth momentum in the last quarter of 2012, an industry index showed Monday, offering the latest sign of an accelerating Chinese economy after nearly two years of slowdown. But experts remain wary about future growth prospects for the country's vast small enterprise economy.

The index measuring development of small and medium-sized enterprises (SMEs) in China jumped 3.3 points to 90.8 in the fourth quarter of 2012, the first uptick in eight quarters, the China Association of Small and Medium Enterprises (CASME) said in a statement posted on its website Monday.

Except for the hospitality and catering industry and the wholesale and retail industry, all of the eight sectors surveyed by the association reported a rise in their respective development indices during the quarter, said the statement, according to which the sub-index measuring SMEs' feeling about the macroeconomic climate rose sharply from the previous quarter, an indication of small businesses' improved outlook on the overall economy.

While pointing to stabilizing growth seen in the small business sector, the index also suggests the pressure faced by SMEs, as shown by declines in the fundraising sub-index and the cost sub-index.

"SMEs in the country still face severe survival pressure, as their profits continue to be weighed down by higher costs, especially rising labor costs," Zhou Dewen, vice president of CASME, told the Global Times Monday.

"Calls for increased salaries have become more and more common in this society, but that serves to further check profits for SMEs," he said.

The average profit margin of many of the country's small businesses stands at around 1-3 percent in the current context; however, the figure was roughly 8-12 percent prior to the global financial crisis in 2008, according to Zhou, also director of the Wenzhou Council for the Promotion of Small and Medium-sized Enterprises.

"Unlike businesses above certain sizes, SMEs face more volatility, as they are more likely to die out amid stiffer competition," Lu Ting, China economist at Bank of America Merrill Lynch in Hong Kong, told the Global Times Monday.

"Rising labor costs are unavoidably a trend in the country, and thus for SMEs the way ahead is either to resort to mechanization or to steer toward high value-added businesses," Lu remarked, pointing to longer-term difficulties confronting the SME sector.

But Zhou still believes small businesses would have a bright future if the government could create policies that effectively improve the business climate for SMEs.