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14 Nov 2008

International Economy

Global Recession: Keep Watching China’s SMEs (Business Brief No.2351)

China's economic stimulus packages valued at USD586 billion to be implemented through to 2010 may take some time to yield results. Over the short term, the impact of the global financial crisis may cause China's exports to slow further. Significantly, Chinese SMEs – as a key economic driver – may face challenges stemming from decelerating exports due to the global economic recession. Moreover, the slowdowns in the US, EU and Japan – as China's top three trade partners – are facing problems with subsiding domestic purchasing power, and this will inevitably affect Chinese SMEs, because they are major exporters to these markets.
The Chinese SMEs that will suffer the most are in labor-intensive industries, because the costs of their exports are being driven up by dramatically rising labor and financing costs. As a result, many related SMEs that produce garments and textiles, footwear, toys, etc., have had to close. Lately, the continuing declines in Chinese exports dented their October industrial growth, falling to the lowest level in 7 years, leading to the forecast that their SMEs may face further sluggishness in exports.
However, those challenges might ease because the Chinese authorities have introduced measures to stimulate their economy and support SMEs. These measures include export tax rebates on various products and the cancellation of the credit requirements for SMEs; these steps are intended to enhance their liquidity and competitiveness.

Meanwhile, the slowing Chinese economy and exports will likely affect Thai exports of raw materials/intermediate goods to China. Moreover, Thai exports will likely face heightened competition with Chinese exports that will have pricing advantages due to export tax rebates. In the future, it is expected that major product quality improvements will be seen at Chinese SMEs due to their government's support toward technological development to upgrade their products to higher value. Although Thai SME entrepreneurs might face tougher competition in world markets, those who trade in the Chinese market might take advantage of the Chinese government's economic stimuli aimed at improving growth in consumption and investment. The Chinese economic plans place emphasis on domestic consumer demand and catering their products to better satisfy consumers. In addition, Thai SME entrepreneurs should ponder their new rules and regulations, as well as review in detail the market environmental differences between the various regions of China before attempting to enter the market.

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International Economy