China should roll out more preferential policies for export-oriented companies to prevent bankruptcies, the Chinese Academy of Social Sciences (CASS) has urged.

"Stabilization of exports" should be a long-term policy, as sustainable growth in exports could "stimulate domestic demand and eventually boost the Chinese economy", a CASS report has suggested.

The report comes at a time when the Chinese government has been unveiling a slew of measures to stimulate domestic consumption even as exports have been on the decline for seven consecutive months ending in May, and the downward trend is likely to continue until early next year.

"Domestic consumption cannot replace exports in invigorating and pushing up the economy," said Song Hong, a senior professor of the CASS.

The CASS survey was based on a month-long field study of around 70 small- and medium-sized enterprises in three major coastal provinces - Jiangsu, Zhejiang and Fujian.

As new orders from the US and Europe have slumped, around 90 percent, said their businesses have been greatly affected; 40 percent said they have either closed or are thinking of shuttering their factories.

The drop in their exports ranges from 20 to 50 percent, which is in line with the national decline. From January to May, Chinese exports contracted by 22 percent year-on-year.

More importantly, as their clients are going slow on payments and commercial banks are still unwilling to lend, a majority of them are facing the risk of a break down in working capital and even, bankruptcy.

Many of those surveyed said they expected the global economy to bottom out in July. Quite a number of companies said they would go bankrupt if the crisis goes well into 2009, and a majority of them said they would certainly go bankrupt if it lasts till late 2010.

According to Xuan Bihua, president of Hangzhou-based Donghua Chain Group, the company's new orders this year have dropped by 50 percent.

"Credit crunch, low export tax rebate and high insurance-related expenditure paid to the laborers are squeezing profits," Xuan said.

"All the respondents said banks should have been encouraged to offer a helping hand," said Song.

The insurance-related expenditure they had to shell out for laborers is adding pressure on their struggling businesses. "They hope to delay the payment till the business is better."

China has been relying heavily on exports, which contributed 60 percent to its GDP in 2008. Although domestic consumption offers huge potential, exports cannot be ignored, Song said.

And, domestic consumption cannot make up for the loss in exports. "We began to develop the domestic business this year, which is contributing to 20 percent of sales, but we lost over 50 percent business from overseas," said Ji Limin, manager of Hangzhou Wangu Textiles.