Ningbo Jinfan Toy Co has been the exclusive Chinese manufacturer of stuffed animals for Starbucks Corp for more than a decade.

Although it managed to achieve 20 percent growth in the second quarter as demand from Starbucks grew, sales manager Ye Shuhui said it will hardly make any profit this year, given the soaring operating costs.

Earlier this year, Jinfan replaced half its 70 sewing machines with highly automated ones, as Ye believes that automation "is inevitable".

A new machine costs 4,000 yuan ($650), almost four times the price of the old machines. But the company can't find enough staff.

Older workers have returned to their hometowns and the younger generation is unwilling to pick up the skills. "As a result, only five of these automated machines are running now," said Ye.

The acute labor shortage has forced the company to raise wages to attract skilled workers. A worker who is highly proficient with operating these sewing machines is paid 6,000 yuan a month, much higher than managers.

"We are kind of falling into a dilemma. On one hand, we have to automate, but on the other, expensive machines cannot fully replace a human workforce, thus the surging cost," he said.

Ye added that SMEs are facing heavy tax burdens. "We seek little financial help now as bank loans are very limited for SMEs. But we do hope that taxes will be reduced somehow."

The central government began trying out a shift from the business tax to a value-added tax at the beginning of 2012. Some of the modern service companies in Shanghai, which were the first to enjoy the new policy, saw their tax bills fall by up to 40 percent.

Li Jianjiang registered a light company in Japan in 1993 and opened Zhejiang Teling Light Industry Co Ltd in Wenzhou as a production base in 1997. To expand the market, Li's company is now also making electric products such as shavers, hair cutters and massagers.

A sales department for small electric appliances was launched earlier this year, which aims to have more than 100 sales points in stores in China.

When the manufacturing industry in Wenzhou slowed down as a result of the global recession, Li started his own small-loan company as a side business.

The company offered loans of more than 1 billion yuan to hundreds of companies in 2012.

"I am discussing with my business partners about launching a private-invested bank to break the monopoly of State-owned banks, to lend to private companies with manageable risks," said Li.

Jin Feipeng, general manager of Shanghai Jiu Ding Clock, dared to transform his family business as an original equipment manufacturer of overseas clocks and clock replacements into one that is a designer and manufacturer of electric protective covers for automobiles.