HOW CHINA IS HANDLING SMES DURING COVID-19

China’s 50 million SMES – largely active in retail, manufacturing of consumer goods, and food supply – are exceptionally exposed to the devastation caused by Covid-19 and the government’s response.

A recent survey found that more than 85 per cent of China’s SMES could go bankrupt within three months without financial support. China’s catering industry, which is mainly run by smaller companies, has already contracted by 47 per cent year-on-year.

Within the first 10 days after China’s Spring Festival, 600 policy interventions in support of smaller firms were made. These included preferential taxes, cuts in rental and insurance costs, and deferrals in electricity payments — all designed to reduce the liquidity strain on Small and Medium Enterprises (SMES).

Banking industry was asked to allow firms to delay interest payments, whilst increasing lending to the SMES. The People’s Bank of China (PBOC) is providing an incentive by making reserve requirement cuts conditional on targeted lending

Made in China 2025 is intended to promote the role of small firms, particularly in national innovation chains. Special funds also exist to support innovative SMES.

The PBOC has repeatedly called for financial "irrigation" and "inclusion". But banks have become wary of the risks involved in lending to smaller firms. Only 23.3 per cent of outstanding loans went to smaller companies at the end of December 2019, down from around 25 per cent in 2018. Without financial cushioning and effective state support, the SMES remain chronically underfinanced. Source: MERICS research