Weak demand, rising labor costs and strained liquidity are ravaging enterprises in East China's Zhejiang province, a traditional stronghold of China's entrepreneurship, and forcing them to scale down or even halt production, a Zhejiang government report said.

The report, based on a month-long investigation and interviews with local government officials and businessmen, said the falling earnings, rising production costs and dwindling orders are now plaguing most of Zhejiang companies.

In Wenzhou alone, 60.43 percent of the industrial enterprises have scaled down or halted production.

In the first five months of the year, the net profit of large companies dropped 23.8 percent, for medium companies decreased 18.3 percent and for small and micro enterprises declined 14.3 percent.

The report warned that the bleak situation for Zhejiang's enterprises could snap their capital chains and threatens to cripple the credit system.