Image Credits - Economic Times
A recent financial health survey conducted by the Chinese Academy of Financial Inclusion at Renmin University in Beijing has highlighted ongoing challenges for China’s small businesses, crucial components of the private sector and significant contributors to urban job creation. The survey, based on data from over 2,300 small and micro-sized firms across China, revealed that more than one-third of the surveyed companies are still financially unhealthy, affecting the lives of approximately 180 million people.
The report emphasized the most critical cash-flow issues facing China’s small businesses, warning that mounting arrears could become a domino effect impacting other operational aspects. About 80% of financially unhealthy firms reported delays in receiving payments, posing higher risks to their operations and financial conditions compared to other companies.
Hou Liming, a researcher with the academy, highlighted the key concern among small and low-profit businesses – their cash flow for operating activities. The report suggested that particular attention should be placed on cash-flow concerns, calling for support from governments and financial institutions to ease the pressure resulting from arrears or severe delays in recoverable accounts.
Small and micro-sized firms, defined as entities paying less than 3 million yuan in annual taxes, having fewer than 300 employees, and possessing total assets worth less than 50 million yuan, are crucial to China’s overall economy. However, this segment is identified as the most vulnerable to the bumpy economic recovery China is facing.
Late payments have become a chronic issue in China’s private sector, especially among small suppliers or contractors of large companies and state-owned enterprises. The central government has initiated campaigns to spur and incentivize debt repayments to address this challenge.
The report also highlighted obstacles to financing activities faced by these small businesses, including a lack of assets and the complex process of obtaining bank loans. Ren Xinglei, president of the China Association for Small & Medium Commercial Enterprises, emphasized the demand for more diversified financial services tailored to meet the specific needs of these companies.
To address these challenges, the report recommended that financial institutions provide insurance products offering strong protection, credit guarantees, and integrated services to support small businesses. It also called for efforts to empower small and micro-sized enterprises to bridge the digital divide and achieve a green transformation, acknowledging the global difficulties faced by small enterprises in the post-pandemic era.