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Consolidating the Recovery Momentum of Micro and Small Enterprises


Xiang Anbo

According to the trend of PSBC Small and Micro-sized Enterprise Operating Index (SMEOI) in the first half of 2022, the business performance of micro and small-sized enterprises (MSEs) began to take a turn for the better in May, reflecting that the relevant support policies were paying off. Given the importance of MSEs in economic and social development and the multiple challenges facing them in the future, the government and enterprises need to make concerted efforts to improve the policy system for supporting MSEs, so as to further bolster MSEs and maintain the recovery momentum that did not come easily.

Firstly, properly deal with the four relations concerning MSEs, with a focus on  compatibility of incentives and mutual consultation. Recently, multiple supporting policies for MSEs were introduced to improve employee-employer relations, cut taxes and fees, reduce operation cost and enhance financial support, showing that all local governments and departments attached great importance to MSEs. Still, there are areas that require particular attention. Even during special periods, in dealing with the four relations, i.e. the government-enterprise relation, employee-employer relation, financial institution-MSE relation and core enterprise-supporting enterprise relation, it is important to strengthen the compatibility of relevant mechanisms to avoid difficulties in the implementation.

Local governments should keep tax and fee reduction policies within their financial ability to avoid paying lip service or overstretching local resources. Therefore, the government need to face the challenges together with enterprises and introduce more sustainable policies such as deferred payment of or cut in social insurance premiums as a temporary measure, cutting administrative fees for enterprises, deferred payment of taxes, encouraging social donations through income tax deduction, etc. Meanwhile, more support should be provided to MSEs in the form of special relief funds, government procurement and consumption coupons, so as to expand demand and facilitate supply-side recovery from the demand side.

The employees and employers, industrial and financial sectors as well as enterprises are encouraged to resolve problems through consultation, and share risks, losses and profits. According to the policies to stabilize and expand employment, MSEs are encouraged to consult with their employees about making necessary adjustments to their work mode and salaries during special periods. During the pandemic, MSEs should be permitted to explore flexible labor relations. To step up financial support to MSEs and reduce loan interest rates, banks’ assessment standards shall be revised to ensure no one who has fulfilled their duties will be held liable for anything beyond their control, and increase the tolerance for non-performing loans for MSEs that are more severely affected by the pandemic. The enterprises are encouraged to stand together and tap into each other’s strengths, promote the sharing of resources and strengthen coordination, so as to match demand with supply and achieve win-win cooperation. To conclude, while the government should better fulfill its role, the market should play the decisive role in the allocation of resources, so as to reduce cost, increase efficiency, and facilitate the implementation of favorable policies for enterprises.

Secondly, strengthen digital empowerment to help MSEs cope with the impact of the pandemic and accelerate transformation and upgrading. Digitalization is an effective way to help MSEs cope with the impact of the pandemic and accelerate the transformation and upgrading of MSEs. During the pandemic, both supply-side and demand-side enterprises are negatively impacted. Thanks to cross-border e-commerce and digital trade, many “micro multinational enterprises” were established, which will contribute to MSE recovery in the post-pandemic era. As the new-generation IT and digital transformation evolve, MSEs in China, especially MSEs in the manufacturing sector, have an urgent need for mature experience, path and methods. The industrial internet platforms could provide a new light-weight development pattern for manufacturing enterprises.

In terms of policy support, we could refine the digital development mechanism that is supported by the government, led by enterprises, and participated in by interested parties. We could also standardize financial and market support measures and create a mechanism with compatible incentives, so as to facilitate platform-based interconnectivity of manufacturing resources in the region.

Industrial internet and other digital platform enterprises should avoid the pitfall of becoming a mere display platform for lack of application scenarios, while making efforts to accumulate enough subscribers to achieve platform economy. This requires the platforms to take proactive measures to attract and support as many MSEs as possible. Efforts should be made to optimize resource allocation, balance the relations between interested parties, improve transaction structures, optimize standard formulation and rule design, thus developing a new development pattern in which the platforms facilitate the development of MSEs, and MSEs bring new vitality to the platforms.

Thirdly, strengthen the supply chain system and promote coordinated development of micro, small, medium and large-sized enterprises (MSMEs). China has the most comprehensive supply chain system. In the context of multiple impacts such as drastic changes and a pandemic both unseen in a century and the Russia-Ukraine conflict, China’s manufacturing supply chain system, which remained stable in the past, is faced with some new challenges. In order to avoid shrinking demand caused by supply chain disruptions and potential ripple effects, core enterprises on the supply chain should take the lead and play exemplary roles to maintain the stability of the supply chain system, thus indirectly supporting the MSMEs in the industry. Under government support and guidance, core enterprises on the supply chain should improve transaction structures and interested-party relations; develop the emergency mechanism for sharing profits and losses during special periods, so as to maintain the robustness, steadiness and international competitiveness of the supply chain system.

It is necessary to track any business layout adjustment, structural optimization and potential supply chain migration of multinationals in China, and make relevant analysis, forecast and response plans. The point is to implement in-depth reform and high-level opening-up, provide a more favorable business environment and make the country more attractive to foreign investors, so as to promote the local embeddedness of multinationals and retain core enterprises on the supply chain. Efforts shall be made to prevent the manufacturing capacity from being replaced by alternatives elsewhere in the world or any potential industrial relocation, which is important for China to maintain its position in the global supply chain system and secure the future development of Chinese MSEs.

In the past, China adopted a policy of “Restructuring Major Enterprises and Relaxing Control over Small Ones” and supported industry leaders to grow bigger and stronger. At present, great importance was attached to MSMEs. With a focus on supporting core enterprises on the supply chain, a balance would be reached in national policies, i.e. by offering support to top players and focusing on core enterprises on the supply chain. It is conducive to the development of both large enterprises and downstream MSMEs.

Fourthly, ensure timely and full implementation of supporting policies for MSMEs. Since the outbreak of the pandemic, governments at all levels and in different regions introduced various supporting policies for MSMEs, most of which are short-term or emergency policies. The government MSME departments may serve as an exchange and cooperation platform for improving the MSME exchange and cooperation mechanism. At a time when old policies are rapidly replaced with new ones, it is important to review and evaluate past experience as reference for the future, and make timely improvement to existing supporting policies for MSEs.

Generally speaking, the short-term and emergency policies must be implemented and executed in a full and timely manner. While it is necessary to take special measures during the pandemic, it is important to strengthen in-process supervision and retrospective evaluation, so as to track and audit the implementation of supporting policies, perform dynamic process management and improve the results of policy implementation.

Moreover, special actions shall be taken to support SMEs, including clearing late payments, introducing tax and fee cuts, easing burdens, promoting digital empowerment, improving management capabilities, enhancing international development, and achieving integration and innovation of small, medium and large enterprises. Special supervision shall be conducted to ensure the implementation of the Regulations on Payment Protection for Small and Medium-sized Enterprises and other relief policies for enterprises.

Fifthly, improve the Law on Promotion of Small and Medium-sized Enterprises to focus on MSE support. In China’s policy and regulation system for supporting MSMEs, SMEs have a fundamental and irreplaceable position. Based on the Law of the People’s Republic of China on Promotion of Small and Medium-sized Enterprises amended at the Third Plenary Session of the 18th CPC Central Committee, relevant government departments made multiple revisions to the law and regulation system to improve the SME service system, and conducted a series of special actions to optimize the business environment and promote the development of MSMEs.

In the long run, the Law on Promotion of Small and Medium-sized Enterprises should be further improved to highlight the position of MSEs. The Organization for Economic Co-operation and Development (OECD) upheld the principle of “small firms first” and the concept of “small is good”, the US Small Business Act specified that small firms are the cornerstone of the US economy, and Germany also believed in “small firms first”. Next, the Law on Promotion of Small and Medium-sized Enterprises shall give a direct focus on MSEs. In China, due to the large span of standards for SMEs and large differences among SMEs, the Law on Promotion of Small and Medium-sized Enterprises should give a more specific focus on supporting the development of MSEs.

(The author is Deputy Director of the Enterprise Research Institute of the Development Research Center of the State Council)