[] [BTBBT Daily - 1/10]Hard times for China's top private businesses

--> A THIRD of China's top private companies either saw profits decline in 2011 or remain the same as the previous year, an industry survey has revealed.

It said business owners were calling for more tax cuts and policies to help them raise funds more easily.

Of the 100 executives interviewed by Ernst & Young, 51 said they expected profits to "slightly improve" over the next 12 months, while 21 estimated revenue would remain flat or decline. However, the remaining 28 were expecting "significant" improvement.

"Fierce market competition, rising operational costs and difficulties in raising funds are the main challenges facing China's private companies," said Terence Ho, Ernst & Young's strategic growth markets leader.

Almost a quarter of the executives said they hoped the government could help them through the economic slowdown by offering more tax cuts, 15 wanted more government spending on medical and pension insurance, and 13 called for less government interference and freer market competition.

Tax deductions

"For example, China's shipping sector was opened up in 1982 and is already the leader in the world," the report said.

"But private and state-owned companies in the sector are still facing different value added tax deductions."

The report highlighted the tough environment faced by private companies in China last year amid the government's tight monetary policies to contain inflation.

Three interest-rate hikes in 2011 lifted the cost of borrowing, and tighter scrutiny of lending had made banks less willing to grant loans to private companies.

The situation was even worse for smaller private firms, as weak economic momentum in Europe and the United States had a major impact on the large number of small private factories which relied on exports to survive.

Wenzhou, an economic hub in the eastern Zhejiang Province known for its successful entrepreneurs, suffered a debt crisis when a number of small business owners were forced to turn to private, mostly illegal, lenders. However, the high costs meant they defaulted when business did not go as well as they had expected.

Since September, the Chinese government has been promoting "structural" monetary easing and tax cuts to offer preferential policies to smaller companies in selected modern industries.