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Optimizing Development Environment and Stabilizing Expectation to Unleash Vitality


Ma Yuan

The year 2023 witnessed China’s rapid economic recovery and development. Domestic demand saw sustained release, investment in manufacturing industry recorded steady rise, exports of the “New Three” products registered robust growth, the economy made steady progress with a rally trend overall. However, there were still challenges existing such as insufficient effective demand, relatively weak social expectations as well as a number of risks and hidden dangers. Relative to large enterprises, micro and small enterprises are small in size, weak in terms of risk resistance capacities and vulnerable to macroeconomic fluctuations. Currently, their production and operations are still faced with some difficulties, so it’s urgently needed to vigorously improve development environment, and provide strong, effective and fulfilling policy support to micro and small enterprises.

According to the operating indices for micro and small enterprises in the fourth quarter of 2023, the following characteristics are revealed. Firstly, the indices for micro and small enterprises showed signs of bottoming out and stabilizing. During the October-November period, the indices dipped, but they reversed the downward trend in December and tended to stabilize. Secondly, enterprises were confident, but took a prudent attitude towards expansion. From October to December, the confidence index remained above the boom threshold, indicating that micro and small enterprises were still steady in their confidence. However, the expansion index was still below the threshold, showing that the willingness of enterprises for expansion still needs to be strengthened. Thirdly, regions became significantly differentiated. In December, indices surpassed the threshold driven jointly by market demand expansion and improving performance in Central & South China, which outperformed the other five regions. The Northwest China and North China regions also witnessed slight increases. Fourthly, industries were still recovering and developing. The indices of construction and transportation industries recorded the sharpest decline in December, which was attributed to the dwindling demand and rising risks in such industries.

Micro and small enterprises are highly homogenous in their businesses, constrained with tight cash flow and fierce competition. With regard to the upstream production factors, rents, utilities fees and Internet charges and labor costs are rigid expenditure, which shall be paid on time by enterprises. While supplying goods downstream, in case of insufficient effective demand, enterprises would undercut each other to maintain survival and development, which makes the development environment even more challenging. A mix of measures can be taken to bring down operating costs, thus helping enterprises to reduce expenditure and improve profitability. However, only by expanding the market and generating more order demand, can we help companies increase revenues, which serves as the key to boosting business confidence.

Surveys show that issues perplexing micro and small enterprises mainly fall into the following dimensions. The first is hefty cost of factors. Due to lack of collateral, the problem of financing difficulties and heavy financing charges cannot be effectively tackled. In addition, weak competitiveness makes it hard to recruit professionals and technicians and retain them. What’s more, the prices of raw materials fluctuate sharply triggered by complex and volatile external situations. The second is limited market opportunities. This is attributed to insufficiency in the enterprise’s strength, implicit discrimination, as well as some problems existing in market system development. The third is payments in arrears. In order to capture orders, micro and small enterprises tend to take the initiative to provide longer payment terms to their partners, and may be subject to forced extension of payment terms, resulting in payment default. Once the market demand lacks momentum, the problem of payments in arrears will be further exacerbated. All such problems call for a holistic approach and shall be resolved in a step-by-step manner.

Recently, a number of key departments have introduced a series of policies in support of the development of micro and small enterprises, to constantly maintain and strengthen the momentum of steady progress. To implement the guiding principles of the Central Economic Work Conference, more vigorous comprehensive measures will be taken to stabilize the development expectations of micro and small enterprises, and unleash their vitality.

First, expand effective demand. We shall get to the core of the issue, give emphasis to expanding effective demand, and create more market opportunities for micro and small enterprises. To shift consumption from post-epidemic recovery to sustained expansion, the key is to optimize consumption environment, and practically raise income of residents, and make them daring and willing to spend. Efforts shall be made to explore emerging consumption growth points, such as digital consumption and health consumption etc. The development of cross-border e-commerce shall be supported, while micro and small enterprises are encouraged to “Go Global” by resorting to cross-border e-commerce. Investment shall be further expanded, so as to generate more opportunities for micro and small enterprises via the industry linkage effect.

Second, reduce factor costs. In parallel with giving full play to the decisive role of market in allocating resources, policy support shall be effectively increased to bring down the operating costs. Efforts shall be made to leverage FinTech approaches and collateral, expand the coverage of credit extension, and provide sufficient talents with matching qualifications. The institutional transaction costs shall be lowered, and the preferential tax policies in support of the development of micro and small enterprises and individual businesses shall be put in place, to guarantee full access to benefits by eligible parties without application.

Third, continue to clear payments in arrears. The problem of payments in arrears has damaged the market environment, increased the interest burdens of micro and small enterprises, and aggravated the financial strains. Pertinent solutions shall be provided by clarifying the sources and classifying payments in arrears. This is needed not only for building a high-standard market system, but also for developing a trading ecology based on good faith.  

Fourth, further optimize business environment. Micro and small enterprises are mostly privately operated, and their development depend on a sound business environment. Efforts shall be made to give full play to the functions of the communication mechanism of private enterprises, earnestly listen to the opinions and suggestions of micro and small enterprises, focus on standardizing regulatory enforcement, promote fair competition, optimize government services, step up policy interpretations, overcome obstacles in policy implementation, and strive to develop a market-oriented and law-based top-class international business environment.

(Author of this article is Deputy Director of Enterprise Research Institute, Development Research Center of the State Council)