Host: What about the domestic and international environment for the development of small and micro-sized enterprises (SMEs) recently? What are the reasons behind the flat SME Index in May?

Li Quan: Since May 2021, the global economy has registered a continuous momentum of structural recovery. Some countries have gained rapid economic recovery thanks to the effective control of Covid-19. Some other countries like India, however, are still severely affected by the virus and undergoing significant economic depression along with inflation. China has witnessed remarkable economic recovery after effective control of the epidemic. In May, the Purchasing Managers’ Index (PMI) of the manufacturing industry stood at a high level of 51.0%, slightly down 0.1 percentage point from April, indicating a smooth expansion of the industry. Specifically, PMI of large and medium-sized enterprises rose by 0.1 and 0.8 percentage point to 51.8% and 51.1% respectively compared with a month ago, both higher than the critical point. PMI of small enterprises slid 2.0 percentage points from April to 48.8%. Large and medium-sized enterprises saw business recovery and expansion at a more rapid pace than small and micro ones. Meanwhile, the Business Activity Index of non-manufacturing industries in May rose 0.3 percentage point to 55.2% compared with the prior month. The Comprehensive PMI Output Index edged up 0.4 percentage point to 54.2% compared with April, reflecting a more rapid expansion in China’s non-manufacturing industries and a steady growth in the production and operation of entreprises.

Against such a background, the Economic Daily – PSBC Small and Micro-sized Enterprise Operating Index (SME Index) in May remained the same as last month at 44.3. Since the beginning of 2021, the SME Index has maintained steady growth and the development foundation of SMEs has been consolidated constantly.

Regarding sub-indices, the financing index picked up 0.3 point to 53.2, revealing the constantly improved financing environment underpinned by related policies for SMEs. The risk index rose 0.4 point to 49.2, indicating that the economy has bottomed out for SMEs. With risks gradually exposed, the index is expected to exceed the boom-bust line in the near future. The cost index increased 0.3 point to 63.2, mirroring a decline in the operation cost of SMEs brought by policies on cutting structural tax and expanding domestic demand. However, the market index declined 0.2 point to 36.5, reflecting that the market of SMEs is still recovering. The purchasing index dropped 0.2 point to 42.2, which was probably due to the fact that SMEs are less willing to purchase because of the price rally in raw materials in upstream industries.

The regional indices dropped to the bottom. The indices of five out of the six regions declined except for one remaining unchanged. To be specific, the East China index performed the best, remaining unchanged at 45.3 compared with April, and the indices of other five regions all fell slightly, signaling the resilience for development.

Host: As the economy recovers steadily, is there going to be any change in related supporting policies for SMEs? What is the impact of such changes on the SMEs?

Li Quan: Recently, China’s economic policies has gradually become normalized. The overall steady growth of macro economy and the return of policies are conducive to the sound and sustainable development of SMEs.

The meeting held by the Political Bureau of the CPC Central Committee on April 30 set forth the general principle of pursuing progress while ensuring stability and emphasized the continuity and sustainability of macro policies with no sharp turns. It set the target to ensure the timeliness, efficiency and effectiveness of policy, lay the foundation and stabilize expectations so as to keep economy performing within an appropriate range, and reach a higher level of equilibrium during economic recovery. In fact, since last year when the epidemic was basically under control, China has implemented economic support policies moderately without excessive stimulation to the economy. It cancelled related policies in a slow and orderly manner as the economy showed a clear momentum of recovery in order to ensure a stable social and economic progress. Following such a general principle, SMEs have achieved steady development along with the macro economy. Therefore, consolidating the foundation of economic recovery will remain the key task for some time to come.

According to the meeting of the Political Bureau, we will continue to implement the proactive fiscal policies in the second quarter of 2021, hold on to the bottom line of “Three Guarantees” at the primary level and play a leverage role in optimizing the economic structure. Since the beginning of this year, policies on cutting taxes and fees have played an active role in underpinning the recovery of SMEs. Meanwhile, polices on stabilizing employment and strengthening social security have supported the future development of SMEs. In May, the prudent monetary policy helped maintain reasonable and abundant liquidity. With the normalization of the monetary policy, we bolstered the real economy, key areas and weak links, and provided preferential policies for SMEs.

It is worth noting that price rally in commodities continued from April to early May, putting a major pressure on the downstream of the manufacturing industry. Being at the end of the economic structure, SMEs have a limited bargaining power and are more susceptible to price increases. The executive meeting of the State Council made clear arrangement to regulate the price hike in commodities, and the market has begun to cool down since mid-May. But we should continue to pay attention to the price trend of related commodities, which will be a hinding factor in the future development of SMEs, especially those in the manufacturing industry.

Host: What are other obstacles facing the further recovery of SMEs? What are your suggestions?

Li Quan: At present, the pressure facing SMEs in their operation mainly comes from three aspects. First, the decline in trade demands caused by the resurgence of Covid-19 across the border and the rally in international shipping price exert pressure on export-oriented SMEs. Second, fluctuations in commodity prices put pressure on SMEs with limited bargaining power. Third, it is worth noting that the continuous appreciation of RMB put adverse impact on SMEs in the manufacturing industry, especially on the export-oriented ones.

In respect of the issues above, I suggest focusing on the following three aspects:

First, we should increase export tax rebate for innovative SMEs, and implement such measures as providing freight and premium subsidies in areas involving green development encouraged by the country.

Second, we should actively respond to the price fluctuations of bulk commodities and temporarily increase the supply of raw materials in urgent demand. Also, we should provide subsidies for related SMEs so as to compensate for the profits eroded by price rally in raw materials, and broaden the space for their future development.

Third, with the fluctuations of foreign exchange rates, we should, on one hand, bolster SMEs according to the development pattern of dual circulation, and encourage the purchase from SMEs in domestic market by such means as government procurement. On the other hand, we should provide targeted subsidy on exchange margin so as to enhance the international competitiveness of SMEs.