Foreign media are reporting that China’s strong economic recovery after the epidemic may be an illusion, with a large number of small businesses still facing tough times with weak consumer demand, rising operating costs and tightening credit from banks.
The reports say that China’s tens of millions of small and medium-sized private businesses, including restaurants and stores, are a key part of daily economic activity, providing up to 80 percent of urban jobs and at least half of China’s tax revenue.
The plight of these small businesses has added to the uncertainty about China’s economic recovery, with a survey finding that many small businesses are reluctant to hire more workers; some even say they may close down if their business conditions do not improve.
The survey, a study of more than 50,000 companies in China conducted by Tsinghua University in Beijing in March, found that nearly 19 percent of small businesses in China went out of business last year, nearly three times as many as the 6.7 percent that went out of business in 2019.
While fewer small businesses can be expected to go out of business this year, many companies are still facing serious cash flow difficulties. A survey of more than 10,000 small businesses released by Peking University and Ant Group in March found that only 15 percent of companies surveyed had enough cash flow to sustain operations for six months or longer, down from 19 percent in the third quarter of last year.
Difficulties faced by small businesses in China include rising raw material costs and supply chain bottlenecks. In the southeastern Chinese city of Rui’an, Ni Ni, owner of a plastic buckle manufacturing plant, said soaring costs have reduced profit margins to almost zero. Ni, 44, said the factory, which has been in this predicament for months and employs about 10 workers, plans to raise product prices or cut other costs if raw-material costs don’t come down soon.
Another problem facing small businesses is the difficulty of obtaining loans. While there are signs that the pipeline for some companies to get loans has eased, the Chinese government has resumed a deleveraging drive that is aimed at curbing debt but has also led to a tightening of credit for many companies.
Zhang Xiaoxi, a Beijing-based analyst at research firm GaveKal Dragonomics, said the policies introduced by Beijing during the epidemic have mostly favored smaller, more mature companies with existing ties to banks. She said the recent Chinese government overhaul of fintech platforms that provide alternative sources of credit, such as Ant Group, could put further financial pressure on small businesses.
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