China's small exporters must adapt or die
(Reuters) - Chen Lifeng's dress-making company survived the global financial crisis yet may fall victim to today's milder economic slowdown, one that China deems necessary to secure its future growth.
His company, Ningbo Tengsheng Garments Co., is grappling with slackening overseas sales, rapid wage rises and higher raw material costs that erode already thin profit margins.
"The situation is grimmer than 2008-09. New orders are falling, but wages are rising. Many firms are doing even worse and some have gone bankrupt," said 31-year-old Chen, whose factory in the eastern province of Zhejiang churns out $4 million to $5 million worth of dresses each year.
"We are doing our best, but frankly I don't know how long we can maintain our business," said Chen, pointing to the empty sewing machines on the factory floor - a third of the capacity.
Firms like Chen's face extinction if they can't evolve to keep up with China's next phase of growth. Beijing is making good on long-standing promises to redirect its economy toward domestic growth instead of exports.
That will involve embracing a painful core principle of capitalism: creative destruction.
Companies that cannot adapt will fail.
Beijing seems prepared to accept that. Economic growth is slowing, and figures due on Friday are expected to show first-quarter output expanded at the slowest pace since 2009, at the tail end of the global financial crisis.
Unlike in 2009, when it embarked on a massive government spending spree to prop up growth, China has done little to prevent the economy from slowing and has even adopted a lower economic growth target, acknowledging that three decades of 10 percent average annual GDP expansion are over.