After the struggle, hopes rise for biz recovery

By / China Daily / Updated: 12:25,20-June-2022

A Huaibei, Anhui province-based small firm's employee (left) explains a product's features to visiting tax officials on May 21. China has extended preferential tax policies to struggling MSMEs to help them cope with the COVID-19 impact. LI XIN/FOR CHINA DAILY

Hard-hit small firms ride policies and aid to rebound amid COVID-19 headwinds

Something unusual occurred this year at Beijing's Yuebin Restaurant. The place is known for its tag-China's first private-sector eatery in the era of reform and opening-up. For only the second time in 40 years since opening shop in 1978, Yuebin halted its business for several weeks.

COVID-related restrictions to reduce human contact ensured that, like in 2020 when it did so for the first time, again due to the pandemic.

In the normal course, the 40-square-meter restaurant keeps its doors open 365 days a year as its patrons include diners from all around the world, including tourists who throng the famed eating house.

"We take great pride in the fact that our family-themed restaurant has endured many a violent storm and other kinds of choppy weather over the past four decades. I had never expected that we would close our doors even for a day," said Guo Hua, the owner of Yuebin.

Besides seeing its enviable record end, Yuebin, like China's countless micro, small and medium-sized enterprises, or MSMEs, sustained heavy losses. MSMEs in the catering, logistics, cross-border commerce and other sectors, which require human-to-human contact, are among the hardest hit.

For instance, around a quarter of products from Changzhou Hengfeng Special Conductor Co Ltd, a small-scale high-tech enterprise in Jiangsu province, started piling up at its warehouse due to the city's COVID-19 flare-ups in April.

The overstocking punched an 80 million yuan ($11.94 million) hole in Hengfeng Special's finances, creating a big cash flow problem.

According to a survey carried out by a team of the Guanghua School of Management at Peking University in February, the business recovery prognosis for MSMEs does not look bright.

MSMEs said they face mounting pressure from sluggish market demand and rising operational costs. Two-thirds of MSMEs said they see cash flows lasting for no more than three months.

To help them cope with the COVID-19 pandemic's fallout, the Chinese government had launched a slew of policy packages over the past two years. The latest one was announced in May, after a State Council executive meeting chaired by Premier Li Keqiang decided to increase support for MSMEs and self-employed households.

"Supportive policies that have been developed should be delivered at a faster pace, to help enterprises stay alive. Meanwhile, policy support, especially financial assistance, will be stepped up. Banks will be guided toward more proactive services," Li said.

Employees of Huzhou Wuxing Rural Commercial Bank introduce financial services tailor-made for MSMEs to a restaurant owner (left) at a shopping mall in Huzhou, Zhejiang province, on May 26. WENG XINYANG/XINHUA

Supportive measures include tax refunds and reductions, fee cuts, deferred payment of social insurance premiums, open and smooth logistics services and the early resumption of the full-capacity production of enterprises.

"There is now big pressure on the employment front. The many MSMEs and self-employed households across sectors are a key underpinning for steady economic and job growth, yet the market entities concerned are currently encountering much difficulty. We must step up support for them. This will also help keep the industrial and supply chains stable," he said.

The China National Intellectual Property Administration said last week that China will strengthen the use of intellectual property as a financing tool to support MSMEs. More efforts will be made to enable more MSMEs to pledge their IP rights in return for funding.

In China, SMEs contribute nearly 50 percent of the nation's tax revenue and produce 60 percent of GDP. They also account for 70 percent of the nation's technology innovation and 80 percent of urban employment, according to the Ministry of Industry and Information Technology.

That should explain why they figure prominently in all economic relief packages. For instance, in Beijing's Dongcheng district, where Yuebin Restaurant is located, a special relief plan reduced rent, utility fees and taxes besides helping lower social security fees.

"It is like an energizer. It feels like the government is reducing and exempting whatever it can for us private households and MSMEs, to help us resume work and reopen business," said Guo of Yuebin.

Although her restaurant's business recovered somewhat after its reopening, the government still exempted water, electricity and some other expenses, helping Yuebin save thousands of yuan, she said.

This year, large State-owned commercial banks will extend inclusive loans worth over 1.6 trillion yuan to MSMEs. Banks will also renew loans, extend and adjust repayment arrangements, and waive default interest for MSMEs and self-employed households as appropriate.

Thanks to the timely assistance, Hengfeng Special Conductor received a special loan of 60 million yuan from Bank of China's subsidiary in Changzhou, Jiangsu province. The bank lowered the company's borrowing rate from 4.8 percent to 3.5 percent in accordance with the central government's policy.

According to Yang Nianxi, the company's head of production, Hengfeng Special Conductor has resumed smooth operations, and its revenue returned to the average monthly level in May.

Visitors check the booth of Changzhou Hengfeng Special Conductor Co Ltd, a small-scale high-tech enterprise in Jiangsu province, at an expo in Shanghai. Premier Li Keqiang said MSMEs are a key underpinning for steady economic growth. CHINA DAILY

Meanwhile, according to a document jointly released recently by the MIIT and 10 other ministries, the country will also boost the full integration of all spheres of SMEs and large companies operating in industrial and supply chains as well as in the big data sector, so as to harness synergies.

The document said a new ecosystem of enterprises of all sizes will be developed. It will be characterized by coordination, efficiency, integration and smooth operations, and shore up industrial and supply chains.

The document proposed guidance for large enterprises so that they would share their design and development abilities and open up their equipment and laboratories to smaller counterparts. It also called for large companies to offer smaller businesses free access to project libraries and databases, and match their industrial chains to advance the integration process.

Peng Huagang, secretary-general of the State-owned Assets Supervision and Administration Commission of the State Council, said at a recent news conference that centrally administered State-owned enterprises have already played a big role in helping MSMEs cope with difficulties.

An increasing number of central SOEs are adding more MSMEs to their supplier lists. For instance, half of the 188 domestic suppliers to Shanghai-based Commercial Aircraft Corp of China now are MSMEs.

Yang Yuanqing, chairman and CEO of Lenovo Group, said established companies, including the information technology giant, should play a bigger role in driving the joint innovation and development of SMEs in the upstream and downstream segments of industrial and supply chains.

SMEs account for 44.5 percent of Lenovo's industrial chain, and the company will offer them help such as financing and marketing resources, especially for those with core technologies.

In May, the SME Development Index, based on a survey of the performance of 3,000 businesses, decreased marginally from the previous month to 88.2, narrowing the downtrend. But subindexes for construction, transportation and postal services and wholesale all showed an increase from a month ago.

The proportion of companies resuming work increased in May by 2.2 percentage points compared with the previous month. More than 20 percent of companies fully reopened their business while 14.3 percent of them reopened 75 percent to 100 percent of their business.

In an interview with China Daily, a company executive in charge of a smartphone component manufacturer in Shenzhen, Guangdong province, said if the factory stopped production for one week, gross income would shrink by 2 million yuan, with net loss exceeding 300,000 yuan.

"But I'm more worried about losing customers," said the company executive, who declined to be named. "If I stop, clients will definitely find other companies to manufacture their goods. It's difficult to acquire a new customer, but it's easy to lose one."

Wang Peng, associate professor at the Hillhouse Research Institute at the Renmin University of China in Beijing, said the Chinese economy will continue gathering momentum if the private sector, including smaller businesses, remains sound, given that many MSMEs are being increasingly recognized for their role as leaders in new concepts and new business models.

"In reality, they tend to become vulnerable to external pressures. In addition to those pressures, these companies still need more to boost their core competitiveness to become irreplaceable on the global stage over the long term," Wang said.



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