Dongguan'S Manufacturing Industry: Financing Difficulties For Generations

Not updating equipment, worrying about being marginalized, buying new equipment and worrying.

In the predicament of rising raw material prices, rising labor costs and declining profits this year,

With regard to this issue, Dongguan Ling Financial Leasing Co., Ltd. (hereinafter referred to as the "east alliance") general manager Ni Ling felt great emotion. In recent two years, he has been striving for the government to introduce preferential policies, hoping to attract more financial leasing industry counterparts to settle in Dongguan, and help solve the problem of equipment renewal of SMEs in Dongguan.

At present, the development of the financial leasing industry in the Pearl River Delta is far behind the Bohai Bay and the Yangtze River Delta.

Qu Yankai, executive vice chairman of the Leasing Association of China Association of foreign investment enterprises, believes that the reason is that local governments do not know enough about the industry and do not attach importance to this industry.

New industries: finding new ways

Jia Yuepeng is considering how to complete the financing of new equipment.

Jia Yuepeng is the general manager of Dongguan Xing Yu Optoelectronics Technology Co., Ltd. (hereinafter referred to as "Xing Yu"). The entrepreneur from Sichuan worked in Dongguan for over 10 years and started from scratch. He founded Xing Yu in 2002 and operated the LED industry, which was strongly supported by the government.

Because the market demand for LED products is far greater than that of supply, expanding production and increasing new equipment is Jia Yuepeng's top priority.

The profit margin of LED products can reach 100% a few years ago. Although the profit margin has dropped in recent years, it can also maintain 20%~30%'s profit margin.

This is a very good profit for Dongguan enterprises which are now generally confronted with development difficulties. In fact, a large number of traditional enterprises in Dongguan have a profit margin of 3%~5%, and many enterprises have suffered losses or reduced production this year.

However, when Jia Yuepeng was looking for 30 million yuan of financing for new equipment, he encountered the financing difficulties faced by SMEs. Dongguan SME Bureau survey in 2010 showed that 74% of Dongguan's enterprises needed financing urgently, but only 30% of them could succeed in financing.

Xingyu's workshop is rented, without land and factory buildings as collateral, and banks are reluctant to lend.

What do we do? Jia Yuepeng learned from his friends that there was a new mode of equipment financing -- financial leasing.

He took the initiative to contact the east alliance.

Founded in 2006, the east alliance is still the only financial leasing company in Dongguan.

The east alliance signed a contract with Xingyu, Xingyu paid 15% first, and the remaining 85% was paid by the east alliance.

Xingyu paid debts in three years.

The ownership of the equipment is owned by the east alliance, and Xingyu is equivalent to hiring new equipment from the east alliance.

The ownership of the equipment returned to Xingyu until the debt was paid in three years.

"Now the annual output of our company is 100 million yuan, and the monthly sales volume is about 10000000 yuan.

With the addition of new equipment, we can achieve an annual output of 250 million yuan, with an increase of about 30000000 yuan in monthly sales. "

Jia Yuepeng told reporters.

And the east alliance continues to fuel the expansion of Xingyu.

"We have designed a financial leasing mode to include customers from the lower reaches of Xingyu."

He Jianzhu, assistant general manager of Dong Lian, told reporters that they plan to provide loans to downstream customers such as hotels, shopping malls, factories and so on. These customers have a common feature, that is, the pformation of LED lighting equipment.

Surprisingly, the lending rate is set at the bank's benchmark interest rate.

No doubt, in today's tight liquidity, providing low interest loans to customers of Xingyu will win more customers for Xingyu.

So how can the east alliance achieve low interest lending? In fact, it only designs a new business model -- the interest difference will be paid to the east alliance by the Star Yu on behalf of its downstream customers.

LED saves 70% of electricity than incandescent lamps. If an enterprise has a monthly electricity charge of 1 million yuan and uses LED, it will pay 500 thousand monthly ~60 yuan to the East Union, which is much lower than the monthly electricity charge. It will pay all the rent and interest after three years. So this is a cost-effective business. For Xingyu, it will get more customers because it solves the downstream customers' financial problems. It loses the interest paid to the 4~6 points of the east alliance. In a nutshell, it is roughly equal to ten percent off of the selling price of the product, and it still has a surplus in order to increase the price, while for the east alliance, it has expanded its business and won't lose money. How can this pattern be established? We simply calculate the interests of all parties in the business: first, the LED lighting pformation enterprises, which are financing by the benchmark interest rate for lighting pformation, according to the calculations of the east alliance.

The government also strongly supports the renewal of equipment in emerging industries.

Jia Yuepeng introduced that the government of Dongguan stipulates that when innovative and core technology enterprises introduce new equipment, there will be a 50% return policy.

But the premise is that after the new equipment is put into operation, the annual sales income of the company will not be less than 30 million yuan, and the tax burden rate is more than 4%.

However, if these enterprises fail to update their equipment themselves, this support policy will also become empty.

In fact, the renewal of equipment in the PRD is still testing the financing capacity of small and medium-sized enterprises. At present, high-tech enterprises like Xingyu in Dongguan are trying to finance leasing and other more flexible financing methods.

Financial leasing companies are trying to design a new financial model to open the equipment rental market of local enterprises.

For example, a new business direction that the east alliance has recently designed is to cooperate with the technical pformation projects supported by local governments.

For example, a technical pformation project, if the government provides 30% of the project's reward and support funds, is the same as the above 50% equipment renewal and return. The 30% of the government funds will be allocated after 70% of the enterprise's technical pformation funds are in place.

Enterprises with less capital have to face the financing problem.

The east alliance's financial model is: the east alliance invested 50%, and the enterprise invested 20%.

Then 70% of its funds are in place, and the government's 30% reward and support fund will be allocated.

Then, how can the interests of the east alliance be guaranteed? Part of the government's allocated 30% funds will be paid to the east alliance as a guarantee. In addition, the enterprise will pay a certain rent to the east alliance every month until the debt is paid off.

So what is the cost of this new financing? It is understood that it generally has an annual interest rate of about 12% in Dongguan, which is slightly higher than that of the Pearl River Delta bank, which generally gives SMEs 10% of the annual interest rate.

However, this new financing industry is not really popular in the PRD.

According to the Research Report on the leasing of machinery and equipment released by Dongguan SME Bureau in January 2010, the scale of Dongguan's financial leasing market is about 6 billion yuan, while the actual paction volume in Dongguan before 2010 was less than 50 million yuan, and the financial leasing market saturation was less than 0.8%, and the market penetration rate was lower to 0.1%, which was significantly lower than the national average of 3% of the total in January 2010.

Because Shanghai and Tianjin have preferential policies for the financial leasing industry, financial leasing companies are more willing to settle in these cities, and the Pearl River Delta is not attractive to them.

The survey also shows that 37.8% of enterprises with leasing requirements are interested in importing equipment through financial leasing.

"We hope to introduce more financial leasing companies, which are more flexible and can really solve the financing problems of SMEs."

Jia Yuepeng said.

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Traditional industries: Dilemma

It is difficult to update equipment in the emerging industry, and the renewal of equipment in traditional SMEs is even more difficult.

Workers are busy working on the two floor of a four storey factory in Changping Town, Dongguan.

On the left side of the access channel, nearly 10 pieces of weaving equipment bought 5 years ago, and nearly 10 new looms on the right are bought this year.

"These machines cost 120 thousand yuan per unit."

Huang Peng, the boss of the factory, pointed out that the money for 70% of the new equipment was approved by the bank last year.

In fact, local traditional SMEs are hard to obtain loans from banks. The main reason for Huang Peng's success is that he is a locals and the factory is his own. In the case of factory buildings as collateral, banks are willing to lend money.

"Buying equipment is a big initiative.

If you don't buy these machines, then the work ahead will be delayed and the following processes will have to be OEM and a fee. "

Huang Peng said that after several measurements, he still bought new equipment.

Ni Ling introduced that as a "world factory", a large number of traditional enterprise production lines in Dongguan were produced in 1980s. Nowadays, enterprises are generally faced with financing difficulties caused by equipment renewal.

"For traditional industries, industrial upgrading is difficult to achieve through a large number of technological research and development to achieve, the most realistic way is to update equipment."

Ni Ling said.

He believes that when new equipment is used, a worker can operate more machines and increase the rate of genuine products.

Because of the reduction of labor and defective products and increasing productivity, a large amount of money can be saved every year, and the purchase of new equipment is a good choice.

However, this concept has encountered challenges in this year's decline in corporate profits and production.

Huang Peng's factory equipment has been updated, but orders for the factory have dropped by 30% this year, and there is no sign of improvement in the next two months.

This worries Huang Peng very much.

As a matter of fact, the labor cost of Dongguan garment factory is much higher than that of Southeast Asia. "The first choice for customers is not mainland enterprises, but Southeast Asian enterprises. The order that Southeast Asia can't do and the order with higher demand will be handed over to us."

In order to have enough orders after buying the new machine, Huang Peng had to take the initiative to lower the unit price, so as to pull the customers.

The profit margin in the factory is lower than in previous years, or even 30% is zero profit.

Huang Peng was at a loss.

As a matter of fact, Huang Peng's life has been counted out compared with other garment factories that have begun to lose money.

Many enterprises in the Pearl River Delta have to consider the problem of equipment renewal.

Without buying new equipment and worrying about being marginalized, buying new equipment can save labor and increase production efficiency, but worry about shortage of orders, which will cause problems in the short term.

How to choose to make the enterprise very distressed.

Huang Weihua, deputy general manager of Dongguan Dexin insulation materials Co., Ltd. sighed.