Factories closing in China; regulator attacks shadow banking system

Dire Straits in the Pearl River Delta
Small and medium-sized enterprises involved in manufacturing are still an important pillar of the Pearl River Delta, but what started as a sharp decline in orders in 2008 has evolved into a more severe problem. Tens of thousands of small enterprises engaged in low value-added manufacturing are under pressure as foreign orders decrease, costs rise, labor becomes scarce, profit margins decline and financing difficulties arise. Amid all these problems, production is difficult to sustain.
Research by the Guangdong provincial government suggests that the difficulties facing Guangdong's SMEs are not the same as those that arose in 2008. Then, orders fell sharply as enterprises cleared inventories, but manufacturers were still able to profit from new orders. But now, according to the Guangdong government research report, "Even if there are orders, (companies) don't dare accept them, because it is difficult to make a profit. Fifty percent of surveyed companies said they were losing money or had profit margins of less than 2 percent. Only 22.2 percent of companies stated they had profit margins of 5 percent or more."
Companies are also finding it difficult to leave the region because of all the attendant infrastructure that cannot be replaced in the cheaper inland provinces. And how are entrepreneurs coping with their closed factories?
With relocation and upgrading facilities both difficult, companies can only reduce capacity and maintain basic business. Some entrepreneurs were even going under. He Xiaying, who operated a jeans processing business in Zhongshan, said that in 2011 she closed the factory she ran for more than a year. Today, she relies on income from renting out shops and gold investments. Many other people like her were going into other businesses, she said.
China Halts Commercial Paper Trust Products
China's banking regulator has banned the rapidly-growing sales of investment trust products that invest in commercial paper in an aim to boost credit controls, Caixin learned from an official at the China Banking Regulatory Commission. According to the source, who was unwilling to be named, some banks' commercial paper businesses are substandard and commercial paper investment schemes are not only unprofitable but are high-risk assets for trust companies. "It is better to stop such business," said the official.

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