China Looks to Boost Employment, Small Businesses Amid Weakening Economy

China Looks to Boost Employment, Small Businesses Amid Weakening Economy
Chinese women wear protective masks as they walk by shops that have gone out of business, in a shopping district in Beijing on April 28, 2020. (Kevin Frayer/Getty Images)
Fan Yu
News Analysis

China may have ditched its annual gross domestic product (GDP) growth target, although the regime hasn’t given up on saving its economy by all means necessary.

Without the burden of meeting certain growth targets each quarter, Beijing theoretically has more freedom to address critical underlying issues facing the economy.

The growth-focused model has in the past pitted officials at various levels (county, municipal, provincial, and national) against each other as geographies competed to generate high growth. Officials would pursue the most convenient ways to produce easy growth, and what resulted was excess capacity and excess supply.

But because of economic pressure that has resulted from the pandemic and declining global demand for Chinese goods, Beijing may not be able to take its foot off the gas pedal. Small businesses are hurting, and unemployment is high—both critical problems for the regime. And recent policy guidance from Beijing suggests that the priority of the Chinese Communist Party (CCP) is to rescue small businesses and boost employment.

Increased Funding to Small Businesses

While Chinese small businesses have often taken a back seat to large companies and state-owned enterprises, the People’s Bank of China (PBoC) and the Ministry of Finance recently established a new funding vehicle to divert up to 440 billion yuan ($60 billion) to banks supporting small businesses.

Regional banks are instructed to use the funds for new loans or to extend maturing loans of small businesses, under the initiative announced by PBoC deputy governor Pan Gongsheng.

Another program announced recently by the PBoC promises approximately 400 billion yuan to purchase existing loans made to small businesses from commercial banks. But these loans would need to be bought back by the banks in one year’s time. That would temporarily free up bank balance sheets to provide new loans to small businesses.

Separately, the PBoC has asked banks across the country to curtail lending to real estate developers and local governments to provide more capital to small businesses.

These announcements follow Chinese Premier Li Keqiang’s assurances during sessions of the CCP’s rubber-stamp legislature National People’s Congress (NPC) last month, that more support would be directed to the nation’s small businesses. It’s believed that much of the loan principal would be forgiven.

Cash Payments to Municipalities

China is also looking to channel funds directly to certain cash-strapped cities and county governments, bypassing the banking network and provincial government system.
According to a report by the South China Morning Post, Beijing will create a special mechanism to transfer 2 trillion yuan ($280 billion) in total to local governments. Of that, 1 trillion yuan will be funneled from the central government budget, and another 1 trillion yuan will be proceeds from off-budget treasury bonds.

This stimulus funding will go to cash-strapped city and county governments to help alleviate budgetary issues that result from lower revenues.

The lower revenues are a byproduct of central CCP policies to slash certain business and personal taxes, which has had a detrimental impact on local government budgets. In addition, the decreased volume of land sales as a result of the CCP virus epidemic also hit local taxes particularly hard in recent months.

Coupon Clipping

In the latest string of actions to promote spending, Beijing announced on June 3 that it would sponsor shopping coupons, to spur consumption and reverse the economic fallout from the CCP virus.

Around 12 billion yuan ($1.7 billion) in coupons will be available, according to Chinese state-owned media Xinhua. The initial batch was made available on June 6 at e-commerce retailer Going forward, Beijing is expected to promote shopping across the country to boost store sales, tourism, and sports consumption.

This isn’t the first time Beijing has hawked coupons directly; authorities provided funding to retailers in the form of sponsored coupons in March and April. Previous efforts were disseminated via platforms run by internet giant Alibaba and through local governments.

Encouraging Street Vendors

While authorities had previously tried to restrict such plebian entrepreneurial endeavors, in an about-face, the CCP is encouraging unemployed people to be street vendors or set up open-air stalls either as part-time or full-time careers.
This was one of the solutions advocated by Li at the NPC last month to alleviate the ongoing unemployment crisis. In a visit to the city of Yantai in Shandong Province last week, Li again championed street vendors as a source of much-needed employment.

Separately, Shanghai authorities have also green-lighted projects to set up more street stalls to support local employment efforts.

Chinese technology platforms, such as Tencent’s WeChat, Alibaba’s Alipay, as well as e-commerce retailers and Suning, all announced new products and applications to assist street vendors in selling their products.

Fan Yu is an expert in finance and economics and has contributed analyses on China's economy since 2015.
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