context: For small, private companies in China, the pervasive state intervention in the economy is the root of the problem. But given the path of dependence on existing institutions, these companies cannot survive without state support. State backing comes at the expense of the loss of property rights, operational autonomy, and incentives for small enterprises to innovate.
Experts elaborated on policy recommendations for helping SMEs get through economic hardships at the 8 June China Macroeconomy Forum. As many small companies were affected by the pandemic, central and local governments released a series of supportive policies including tax and fee cuts, deferred social security submissions, rent discounts, special financing, etc.
While the Covid situation is yet to turn around in many localities, SMEs still have difficulties getting orders and restarting production. Without revenue, it is better to outright cancel social security submission and rent rather than defer them, advises Wen Bin 温彬 China Minsheng Bank. In a similar vein, Xu Zhaoyuan 许召元 State Council Development Research Centre said rent discount is currently limited to state-owned properties; systematic measures should be promoted to guide private property owners to cut rents for small companies.
Xu also advocates a systematic reduction of financing costs for small firms. Although China’s savings rate is the highest globally, financing costs are still high for small companies. This situation can be improved with more creative supply-chain financial instruments and a reduction of inefficient investment. Banks need to change their conventional credit-granting models, raising the portion of credit loans, says Wen.
Mao Zhenhua 毛振华 China Chengxin Credit Rating thinks small companies should not rely on the banking sector. In normal times, they should rely on venture capital, private financing, and equity financing. But under extraordinary circumstances, the government should provide credit guarantees or even subsidies for specific sectors and wage payments to enable small company financing. Compared to many developed economies, China can still do more for small companies, adds Mao.