Weathering Difficulties

Li Xiaoyang

Li Jin， general manager ofTinythings， a media company based in Shanghai， has had ahard time during the COVID-19 resurgence in the city in recent months. The company， which has a dozen employees， wasestablished in 2020 and focuses onmaking documentaries. Starting from March， all of its filming projects have been suspended.

“The major costs of micro and smallenterprises are office rent and staffsalaries. Our clients cannot pay us in atimely manner during the pandemic，adding to our financial burdens，” Li said.

Many micro， small and medium-sized enterprises （MSMEs） and self-employed individuals are facing similar challenges. They include disruptionsfrom COVID-19， rising commodityprices， declining market demand， labor shortages， high logistical costs andpower crunch， according to Pan Helin，co-director of the Digital Economy and Financial Innovation Research Centerat Zhejiang University’s InternationalBusiness School.

To support these businesses toweather the impacts of COVID-19， thegovernment has introduced a slew ofrelief policies including tax cuts andrefunds， administrative fee reductionsand financial subsidies. Efforts arealso being stepped up to stabilizecommodity prices， lower costs of digital transformation for businesses， ensuresmooth logistics and boost resumption of production.

Financial institutions will shore up their support to cover more MSMEsand self-employed businesses. Thisyear， large state-owned banks will add over 1.6 trillion yuan （US$241.7 billion） of inclusive loans for micro and smallenterprises， according to a notice issued by the State Council leading group forpromoting the development of smalland medium-sized enterprises （SMEs）on May 9. The lenders have beenrequired to renew loans， extend andadjust repayment arrangements， andwaive default interest for businessesin difficulties without affecting theircredit records.

Targeted Support

In recent months， Chinese MSMEsand self-employed businesses have been facing mounting pressure as pandemic- induced impacts continue to linger.

In April， the SMEs Development Index， based on a survey of 3，000 firms， edgeddown 0.3 percentage points in April from the previous month to 88.3， the thirdconsecutive month of decline for theindex， the China Association of Small and Medium-sized Enterprises said.

The sub-indexes for industry，construction， transportation and postal services， wholesale and retail， as well as hospitality and the food and beverageindustry all retreated from a month ago， according to the association.

Against the heavy downwardpressure， targeted support from thegovernment and financial institutions have become the source of confidence for many entrepreneurs.

The Ministry of Finance has reduced or waived six local taxes and two fees，such as real estate tax and educationsurcharge for small and microbusinesses. The tax and fee cuts cameinto play from January 1， 2022， and will be effective until December 31， 2024.

The policies are aimed at supporting low-profit businesses with annualtaxable incomes of less than 3 millionyuan （US$442，334）， no more than 300employees and 50 million yuan （US$7.37 million） in total assets.

The People’s Bank of China （PBC）， the central bank， along with other centralgovernment departments， issuedguidelines in February on increasingfinancing support for businesses in the service industry， especially sectors offood and beverage， retail， tourism andtransportation， where there are manyMSMEs and self-employed businesses.

The balance of China’s inclusive loans to small and micro businesses stood at20.8 trillion yuan （US$3.1 trillion） at theend of March， up 24.6 percent from thesame period last year. The number ofrecipients totaled 50.39 million duringthe same period， 2.2 times that at theend of 2018， the PBC said.

Local governments have alsointroduced policies for cutting rental，power and water costs. Audio SpecificSignal Processing， a Beijing-basedcomputer chip company， is one of over100 small and micro enterprises thathave benefited from rental cuts unveiled by the municipal authorities in May.It received rental relief for six monthstotaling over 100，000 yuan （US$14，744）， which has been set aside for its research and development （R&D） programs.

To ensure the stability of supplychains of MSMEs， local governmentshave encouraged greater participationof transportation and digital enterprises in related efforts.

Although MSMEs and self-employed individuals have gained much support， deferred payment is still a majorconcern for them. According to theNational Bureau of Statistics （NBS）， the average payment period for enterprises reached 54.7 days in the January-March period， compared to 30 days inpre-pandemic times. The prolongedduration is putting pressure on manyproduct and service suppliers with tight cash flow.

The authorities need to tightenoversight in this regard and introduce innovative financial tools， such as bills issued by core enterprises to otherbusinesses on supply chains， to tackle the problem， Sun Wenkai， a professorat the School of Economics at Renmin University of China， told 21st CenturyBusiness Herald.

Boosting Circulation

Currently， rising costs of rawmaterials， transportation and overseas businesses caused by the pandemicand geopolitical conflicts are majorchallenges for many foreign tradeMSMEs.

Aosom， a cross-border e-commercefirm in Zhejiang Province， has seenrising orders from overseas marketsthis year， but inadequate productioncapacity of cash-strained upstreamsuppliers has affected its business.Eventually， some of its suppliersreceived a total of 30 million yuan（US$4.4 million） of loans introducedspecially for cross-border e-commercecompanies from the Export-ImportBank of China， which has helped Aosom complete its orders.

Some companies have soughtnew modes of business in responseto the current environment. JhLeicast Cookware Co. Ltd.， a cookware manufacturer in Zhejiang， focused onthe overseas market before 2020. Dueto rising labor and material costs sincethe emergence of COVID-19， its products began to lose competitiveness in theinternational market. With supportingpolicies from the government， thecompany started to explore thedomestic market.

“To meet demands of domesticconsumers， we set up new teams toredesign our products. The competition in the domestic market can be evengreater， but we finally made it，” JingXuezhan， assistant to the generalmanager of the company， told People.cn.

According to Jing， the companyreceived orders from two enterprisesworth nearly 30 million yuan （US$4.48 million） in 2021. Its products have also reached rural consumers， with annual sales averaging nearly 10 million yuan （US$1.47 million）.

To support MSMEs engaged inforeign trade， a major driving forcefor China’s economic growth， a StateCouncil Executive Meeting in early May announced that credit loans issued tothe firms will be increased. Banks were told not to withdraw， cut off or withhold loans to firms experiencing temporaryhardship.

Relieving Pandemic Strain

With effective measures to balance COVID-19 control with development， China’s economy remained stable inJanuary-April.

During this period， value-addedindustrial output measuring factoryactivities went up 4 percent year onyear， and exports jumped 10.3 percentyear on year to nearly 6.97 trillion yuan （US$1.03 trillion）， according to the NBS.

However， industrial output declined 2.9 percent year on year in April alonefrom the previous month， and retailsales of consumer goods， a significantindicator of consumption， went down 11.1 percent month on month in April.

At a press conference on May 16， NBSspokesperson Fu Linghui said the decline does not necessarily mean economiccontraction in the second quarter， asShanghai andJilin Province， which arefinancial and industrial hubs hit hardby the recent COVID-19 flare-ups， aregradually resuming work and production. The Chinese economy was expected toimprove in May， he concluded.

Businesses in Shanghai have beenreopening starting from May 16. The city is expected to fully restore productionand normal order of life from June 1to mid-late June under the outbreakcontainment strategy.

Pan said production resumptionshould be accelerated to stabilizesupply chains. Local governments need to further support the MSMEs and theself-employed to resume businesswhile enhancing COVID-19 preventionand control. Small businesses shouldalso be encouraged to improve digitaland intelligent transformation toreduce impacts of labor force shortages， he suggested.