A recent report on China’s small and micro-enterprises highlights that over one-third of these businesses have unhealthy financial conditions and numerous risks.
An analyst believes that as China’s economy is on a downward trajectory, the essential pillars of economic growth—exports, real estate, and infrastructure projects—have stopped growing.
The latest report published on Jan. 30 from the Chinese Academy of Financial Inclusion (CAFI) at Renmin University looked at the financial situations of small and micro-enterprises in China. However, it did not disclose the number of companies surveyed and their locations.
The report devised a “Financial Health Index,” which found that more than one-third of small and micro-enterprises it surveyed are “unhealthy,” which, in turn, affects the employment prospects of 180 million people.
The data showed that in day-to-day financial management, small and micro-enterprises faced a significant challenge with overdue accounts receivables, resulting in substantial pressure on cash flow that demanded special attention. Among those classified as “highly unhealthy,” approximately 80 percent struggled to retrieve receivables on schedule.
The report indicated that small and micro-enterprises are mainly challenged by risks arising from market competition, strained daily working capital, and price fluctuations. The key obstacles to improving insurance coverage for these enterprises include insufficient risk awareness, lack of information, and the absence of suitable insurance products.
Struggling Economy
In January 2015, China Guangfa Bank (CGB) released the “White Paper on China’s Small and Micro Enterprises” in Beijing and launched China’s first “Small and Micro-Enterprise Health Index.”The White Paper centered on 12 cities where small and micro-enterprises are most concentrated and the top 15 industries with the highest percentage of small and micro-enterprises.
Based on statistical calculations, there was an unmet funding gap of 22 trillion yuan (about $1.69 trillion) in China’s small and micro-enterprises, which was yet to be adequately addressed through viable financing avenues. The overall market demand for financing was exceptionally vast.
Approximately one-third of small and micro-enterprises in China had a “Comprehensive Health Index” below the baseline, suggesting a suboptimal state and posing challenges to their operation and growth. Products like pharmaceuticals, cultural and sporting goods, footwear, and bags exhibited lower index values, indicating heightened operational pressure.
According to the White Paper, the operation and development of small and micro-enterprises in China face five common challenges: “fierce industry competition,” “substantial cost pressure leading to low profits,” “an unfavorable overall economic environment,” “excessive tax burdens,” and “difficulty in securing financing.”
In response to China’s ongoing economic decline, political analyst Wang He told the Chinese language edition of The Epoch Times that over the past few decades, the Chinese Communist Party (CCP) has relied on investment to stimulate the economy.
However, China’s investment scale has become unsustainable, and the returns on investment are diminishing, he said, adding that private capital has withdrawn, showing reluctance to invest, and even foreign capital is departing. Therefore, he said, the only recourse is for Beijing to invest in infrastructure projects, which would involve borrowing money.
“If the dependence on government investment persists, it could worsen the government’s debt crisis,” said Mr. Wang, “Therefore, the CCP currently finds itself in a dilemma.”
China’s debt-to-GDP ratio hit a new record high of 287.8 percent in 2023, according to Nikkei Asia, citing a report by the National Institution for Finance and Development.
In particular, there is a lack of confidence in China’s economic situation both at home and abroad, noted Mr. Wang, resulting in a significant outflow of funds.
“Since last year, China has seen a decline in investments, a drop in foreign trade, and inadequate consumer demand, essentially causing the three pillars of the economy to ground to a halt,” he said, referring to exports, real estate, and infrastructure projects.
He asserted that market analysts anticipate this year’s economic situation to be “more severe than last year, showing no signs of relief.”
