Economy

Mass lay-offs?

Coronavirus creates crisis for China’s SMEs

Li-Keqiang-w

Li visits a mask factory

There are more than 30 million small and medium-sized enterprises (SMEs) in China, according to the Ministry of Industry and Information Technology. The definition includes everything from the smallest of noodle shops to factories with a staff of 2,000 people. Traditionally they have outperformed larger state-owned firms in creating jobs, making profits and generating economic growth. Getting finance has been a much harder task, however, because the banks have always been more reluctant to lend to them than to state-owned enterprises. That creates even more pressure in periods of crisis, such as the slowdown triggered by the coronavirus outbreak.

Zhou Dewen, deputy chairman of the China Association of SMEs, told the China Times this month that many smaller firms won’t survive much further than two or three months of shutdown – a finding echoed by a study from Tsinghua University, which warned that only 15% of SMEs could survive 12 weeks of closure.

Both pointed to fixed costs such as salaries, rent and social security contributions as the biggest drain on cash reserves.

Zhou predicts that 30% of all workers at smaller firms could be laid off, while Tsinghua said 22% of the 995 companies it had surveyed already planned to cut staff. Another 16% planned to shut up shop altogether.

Another report by the Evergrande Research Institute states that the catering, tourism, and entertainment sectors will be the hardest hit, followed by transport, education and training.

“Demand and production have plummeted: investment, consumption, and exports have all been significantly impacted,” it warned.

Under instruction from Li Keqiang, China’s premier, provincial and municipal governments have been introducing temporary measures to help smaller businesses survive. In Beijing and Shanghai, firms have been allowed to defer their social security contributions for employees. In Hubei – the province most affected by the outbreak – the banks aren’t calling in overdue loans.

But many business owners say these measures aren’t enough – especially in areas where companies have been instructed to stay physically shut until March 10.

Even in cities such as Beijing where the number of infections has been lower, many firms are still closed – partly as result of a rule demanding that anyone returning to the capital from elsewhere should self-quarantine for 14 days.

In offices that have reopened people have been told to eat their lunches separately rather than in the canteen, while some employers have instituted twice-a-day temperature checks, or insisted on an ‘alternate chair’ policy that minimises closer contact in meetings.

On the streets of Beijing the majority of shops are still closed and the restaurants that are still doing business ask people to pick up their orders in take-out bags at the door.

Other eateries have a ‘no-more than-three-people at a table’ rule.

In an open letter posted on cyzone.cn, Wu Hai, the founder of a hotel and KTV group, said he felt that his business was at a “dead end”. He added: “No SME can get a loan if they don’t have fixed assets or cashflow. We will die in April unless investors step in.”

Another business boss – Jia Guolong at Xibei Catering – warned that as many as 40 million people in the food and beverage industry could lose their jobs if the situation persists. He said his own popular chain could probably survive only another three months in current conditions, even with the help of emergency loans.

“Just before the Lunar New Year we paid for goods, as well as staff bonuses. We didn’t keep much in reserve because the holidays are normally our peak period, and we thought we would get it back immediately,” he explained to Chinaventure.com.

Meizhou Dongpo, another catering company, has been struggling with similar conditions. It has been trying to make up for its losses since the virus outbreak by selling vegetables on stalls outside its restaurant. The Beijing News said this was because it had been forced to take standing orders from its suppliers which it was now trying to offload for much-needed income.


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