How does Chinese government help SMEs financially during the outbreak?

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Small and medium-sized enterprises (SMEs) are of great importance to maintain stable employment and economic development in China. By the end of 2018, there were more than 30 million SMEs and more than 70 million individual businesses in China, contributing more than 50 percent of tax revenue, 60 percent of GDP, 70 percent of technological innovation and 80 percent of employment. During the outbreak, SMEs suffered from declining orders, delayed production and shortage of liquidity. Addressing cashflow difficulties is prioritized for resuming production.

The Chinese government has taken four actions to help SMEs get through the cashflow crisis.

First, different measures are taken in different sectors to help SMEs resume production. In low- and medium-risk regions, production is resumed orderly. Inappropriate control of logistics and people flows are abolished to enable business resumption. Local governments have set up rapid response mechanism for SMEs to report their problems on production resumption. For example, in March, Shenzhen launched a platform where SMEs can relay their concerns and related government departments are required to respond within 24 hours. In the first 14 hours of operation, 350 enterprises registered and submitted their appeals via the platform.

Second, tax and fee reductions and exemptions are implemented with enhanced fiscal support to SMEs. Between March 1 and the end of May, small-scale taxpayers in Hubei province are exempted from value-added tax (VAT) while the rate decreases from 3 percent to 1 percent for small-scale taxpayers in other regions. From February to June, social security contributions from SMEs are exempted provisionally, which is expected to help qualified enterprises save more than 600 billion yuan in total.

Third, support is provided to facilitate financing for SMEs. Eligible SMEs are permitted to postpone the payment of their loans and interest. For those facing temporary hardship caused by the outbreak, financial institutions are not allowed to withdraw loans. A 300-billion yuan special re-lending fund has been launched to help SMEs with the re-lending rate lowered by 0.25 percent. Commercial banks are required to simplify the loan processes and reduce loan costs. As of March 13, 107.5 billion preferential loan has been issued in total, among which SMEs received 38.5 billion with the weighted average interest rate of 4.36 percent.

Fourth, the operation cost of SMEs is decreased. All vehicles are exempted from highway tolls amid the outbreak nationwide, reducing logistic expenditures. This policy is expected to cut the cost up to 1.5 billion yuan in total, estimated on the average daily traffic flow of 26 million vehicles. Electricity fees are cut by 5 percent for enterprises temporarily, allowing about 50 million eligible enterprises to save 44 billion in total between February and June. Platform firms are also encouraged to support on-line business by reducing service fees and lowering entry threshold.

Author: Liang Xiaomin, Center for International Knowledge on Development