Small firms need more financial aid
Government efforts are needed to provide private companies with ways to access startup funding
China’s private companies have made a great contribution to its economic development. They have played an important role in job creation, technological innovation, the country’s tax income and expansion of overseas markets.
By the end of 2017, China had more than 27 million private companies, and more than 65 million individually owned businesses. They have provided more than half of China’s tax income and account for more than 60 percent of the country’s GDP. They also have made more than 70 percent of China’s technological innovations and offer more than 80 percent of jobs in urban areas.
Research shows that small and medium-sized enterprises are extremely important for the health of the economy, especially for innovation and employment. However, most unicorn companies are started from very small ones. Small companies are numerous, have a flexible business model and are passionate about creating and sensitive in embracing new demands. Many countries set up specialized funds to offer financial aid to small companies. Although China has advocated innovation and entrepreneurship, small companies have difficulty getting financial aid.
However, in sectors that concern the lifeline of the national economy, Stated-owned companies still dominate. Since the service industry is more technology-intensive, small companies should have more opportunities, but in many service sectors, such as financing, telecommunications, healthcare and education, there are still some policies that are restricting the entrance of private companies. This is why many private companies are mainly in the low-end market, gaining a relatively lower profit margin.
Since private companies are stuck at the entry threshold, have difficulty getting credit endorsement from the government, lack resources and experience more difficulty in getting service and support from the government, they are less able to deal with the changing market environment. So as the global economic situation changes, and China undergoes economic transformation, it is inevitable that China’s private companies will have difficulties. It is no wonder, then, that trade tension between China and the United States can be a devastating blow to the confidence of private companies regarding the future economic situation.
However, if private companies cannot survive, this will be a big blow to the whole economic situation. For example, if many private companies close, this will increase the unemployment rate and affect social security.
China’s economy might currently face risks that could cause a chain reaction, which is why we need to restore a sense of confidence in the private sector. These risks include a real estate bubble, a high debt ratio of local governments and high dependence on the export economy.