A lack of letters of credit (L/Cs) in recent weeks has added to a catalogue of problems already experienced in 2008 by China's small- and medium-sized enterprise (SMEs) sector.

Thousands of SMEs have gone out of business this year, and experts suggest the lack of L/Cs before the peak Christmas trading season this year will push even more SMEs towards the brink.

Bankruptcies

More than 67,000 SMEs in China were declared bankrupt in the first half of 2008, some of them pressured by Beijing's discouragement of firms making low quality goods.

More than 10,000 labour-intensive textile enterprises, for example, have closed this year according to official figures.

L/C shortages

One banker says the L/C shortage at the end of the year has made a significant impact on China's exporting SMEs.

International buyers of Chinese products failed to obtain L/Cs in October, which led to significant cancellations of Christmas orders, according to chief China economist at JPMorgan Securities (Asia Pacific) Limited, Frank Gong.

He says in a recent report that it was common to hear from business people that the flow of L/Cs had "suddenly ceased."

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