What China’s Tribulations Mean For SMEs Everywhere

China may be enduring sluggish economic growth, but the nation remains a powerhouse for the global market. That means that if businesses want to stay competitive and globalize operations, they can’t afford to ignore the Chinese market.

But the latest statistics about China’s economic climate highlight emerging difficulties for SMEs both within and outside of the nation that has been tasked with calming fears over a yuan devaluation, stock tumbles and threats of economic depression.

Last weekend, reports in The Telegraph released new figures to showcase China’s ongoing tribulations. Missing expectations, Chinese manufacturing took a hit last month, the third month in a row, reports said.

The numbers, published by China’s National Bureau of Statistics, are likely to jolt overseas corporations’ faith in the Chinese market. Soon after their release, President Xi Jinping issued a statement Tuesday (Nov. 3) revising economic growth goals down to 6.5 percent. But the climate is making for some unique challenges for SMEs in particular, analysts say, both at home and abroad.

Local Frustrations

According to recent reports in The Wall Street Journal, the ongoing economic woes in China mean many local players – consumers and businesses – are looking to move money out of the nation. But regulations limit how much money can be sent outside of China’s borders every year.

It’s a situation seen in other markets, too, like Egypt: Underground banking becomes a lucrative business, and local banks see a decline in foreign exchange reserves, reports said. According to China’s central bank, shadow bankers handle about $125 billion every year from people looking to move money out of the country.

“It’s a sign of a loss of confidence in China’s economic outlook, and it certainly makes it more difficult for the central bank to achieve their reform goals,” said Capital Economics economist and researcher Julian Evans-Pritchard in an interview with The WSJ.

Spreading Outward

According to the latest from Hong Kong’s Standard Chartered Bank, Hong Kong small businesses are bracing for rough seas ahead as a direct result of the current market climate in mainland China. Kelvin Lau, the bank’s senior economist, recently told reporters that in the next few months, sentiment among the SME community is likely to suffer.

Lau’s conclusions follow analysis by Standard Chartered and the Hong Kong Productivity Council, which revealed that sentiment among Hong Kong SMEs is the lowest it has been in three years.

Researchers found that nearly one-quarter of SMEs in Hong Kong say the economy is worse now than it was even before the 2008 global economic crisis. Significant percentages of SMEs said they are considering wage cuts, wage freezes or layoffs.

But even further abroad, SMEs and entrepreneurs are feeling the impact, too. Reports in The New York Times on Tuesday pointed to the bureaucratic and regulatory frustrations felt by overseas small businesses when they look to do business in China.

According to Chet Scheltema, a managing partner for consulting firm Dezan Shira & Associates, small businesses are often found to be unable to overcome China’s challenges, meaning they’re left out of cheaper labor and materials.

[bctt tweet=”Fewer SMEs are taking the jump and coming to China”]

“There’s a feeling that fewer SMEs are taking the jump and coming to China,” Scheltema told The NYT. “They’re a little more cautious and we’re closing a surprising number of companies.”

According to the U.S.-China Business Council, a recent survey revealed that 97 percent of companies surveyed – SMEs and large corporations alike – admit they lack sufficient resources in terms of financing, contract accessibility and licensing to compete with state-owned Chinese enterprises.

With a weakened economy, China could lose even more interest from overseas SMEs already struggling to enter the market.

The situation poses a problem with immediate effects for foreign SMEs with cross-border ambitions – and even longer-term implications for the health of the global economy overall.