According to data from the Chinese National Bureau of Statistics, micro and small enterprises account for nearly 99% of the total companies in the country and contribute to one-half of its tax revenue, 60% of its output and 80% of urban employment.
Deemed too big to fail, embattled property firm Evergrande sent shockwaves through financial markets for the better part of last year. At the same time, China saw 4.37 million of its small and midsized enterprises (SMEs) shutter their doors in the first eleven months of 2021. The figure is three times the number of new firms that opened during the same period and ten times more than opened in 2018, the South China Morning Post reports.
Micro and small businesses in China have been in distress for years. Surging labor and commodities costs, growing competition from other countries in the region and a trade war with the US have started straining their profit margins long before the Covid-19 outbreak, but the pandemic was the final blow. Although China has been largely successful in controlling the virus, sporadic outbreaks had led to factory closures and lockdowns that triggered a drop in consumer spending at home, which adds to exporters’ woes as they are struggling to meet demand abroad.
According to data from the Chinese National Bureau of Statistics, micro and small enterprises account for nearly 99% of the total companies in the country, or about 44 million. Overall, they contribute to one-half of its tax revenue, 60% of its output and 80% of urban employment.
While the government has rolled out tax cuts and other forms of financial support, some of its moves have been less beneficial. The crackdown on excessive borrowing and speculation in the housing market had unwanted spillover effects across all sectors; the shortfall in land-sale revenue also constrained funding for infrastructure and stifled employment. Similarly, among the more than 200,000 small companies engaged in the technology sector, some were negatively impacted by strict regulatory measures imposed on their larger peers.
Supporting small companies is crucial to China’s continued growth, noted Vice Premier Liu He during a recent business forum held in Changsha, the capital of the Hunan province. Yet more pain for entrepreneurs and workers is likely to come.