SHANGHAI - Most Chinese businesses will face the toughest time this year since 2000, according to a research unit affiliated with the State Council, or cabinet.

Global demand is expected to keep declining, adding to the woes of many manufacturers that have been squeezed by rapidly rising labor and material costs, according to the annual report on Chinese enterprises' development released on Sunday by the Development Research Center of the State Council.

"As the pace of the global economic recovery has remained haphazard, many Chinese enterprises, which suffered in 2011, will face even tougher times in the coming months," said Zhao Changwen, director of the enterprise research unit that compiled the report.

"A viable option for enterprises in China, especially small and medium-sized enterprises, is to try to move up the value chain by focusing on product design and brand building," said Zhao. This strategy, he added, could help improve overseas sales and widen companies' profit margins.

The export slump and rising costs have forced many small and medium-sized enterprises (SMEs) in coastal cities such as Wenzhou, Zhejiang province, to do just that.

Zhang Rui, the owner of Wenzhou Chuangsi Optical Spectacles Co Ltd, said that overseas orders had declined rapidly, resulting in a 20 percent cut in profit in 2011.

Being an original equipment manufacturer for other brands in Europe and Asia, "there is no way around" the situation, she said. So "we began shifting our focus on the domestic market by creating our own brand", said Zhang, whose company has about 300 employees.

More than 80 percent of the clothes manufacturing companies in Wenzhou are finding domestic competition tough, according to the Wenzhou Chamber of Clothing Commerce. "Most companies are facing problems such as lower foreign demand and the lack of any advantage in product design," said Zheng Chen'ai, chairman of the chamber.

Zheng said that the chamber is trying to help enterprises restructure, build their own brands and produce updated products for the emerging market.