Data Shows Small and Medium-Sized Enterprises in China on the Decline

China's private sector struggles to survive under the country’s zero-COVID strategy and economic downturn
By Kathleen Li
Kathleen Li
Kathleen Li
Kathleen Li has contributed to The Epoch Times since 2009 and focuses on China-related topics. She is an engineer, chartered in civil and structural engineering in Australia.
May 26, 2022 Updated: May 26, 2022

Small and medium-sized businesses in China have suffered dearly under the country’s dynamic zero-COVID policy amid an economic downturn. Since February 2022, China’s Small and Medium Enterprise Development Index (SMEDI) has declined for three consecutive months.

“Nearly all customer flow, logistical flow, and cash flow [for small and medium-sized private businesses] have stranded,” Mr. Ma, a small business owner in Shanghai, told The Epoch Times on May 21 in an exclusive interview.

“Once a business is closed down, it is likely to stay closed,” Ma added, saying that it is “too late” for any remedy from the government to the private sector.

In April, China’s SMEDI dropped to 88.3, a decline of 0.3 from the previous month. The index dropped 0.6 month-on-month in March and 0.2 in February. Additionally, all eight SMEDI sub-indices declined in April, with the composite operating index falling by 0.7.

SMEDI is a set of indices released by the China Association of Small and Medium Enterprises, indicating the performance of small and medium enterprises in China. Sub-indices show the data in more refined business categories. April’s SMEDI showed low confidence, weak market expectations, and a continued decline in profit.

Although China’s State Council on May 18 promised to strengthen support for small and medium-sized non-state-owned enterprises, business closures and unemployment numbers remain a prominent issue since Beijing adopted the “dynamic zero-COVID strategy,” which involves mass testing and strict quarantine measures to stamp out an outbreak of the CCP (Chinese Communist Party) virus before it can spread.

Epoch Times Photo
People line up for nucleic acid tests to detect COVID-19 at a makeshift testing site in Chaoyang District in Beijing, China, on April 25, 2022. (Kevin Frayer/Getty Images)

“Most businesses with no hope to pull through have given up and laid flat, while a small number are still struggling and fighting to survive using possible methods,” Ma said, adding that the future for Shanghai appears grim.

“Shanghai will likely see even more business closures, including those with diligent owners and proper management. Investors are pulling out, the unemployment rate is high, and the healthcare system is exhausted. An economic depression is inevitable in the next five to ten years,” Ma added.

A recent telephone survey conducted by East China Normal University (ECNU) showed that 89 percent of business operators surveyed had lost confidence in their businesses or were ready to shut down their businesses. The team led by Guan Hao, a doctorate at ECNU, contacted 2,603 small and medium-sized enterprises for the survey, with 38.15 percent of the calls answered.

According to China Industry Research Network, by the end of 2019, prior to the COVID 19 pandemic, Chinese small and medium-sized enterprises in the private sector contributed more than 50 percent of tax revenue, generated more than 60 percent of the country’s GDP, were responsible for more than 70 percent of technological innovation, created over 80 percent of urban labor employment, and made up more than 90 percent of the number of enterprises.

In April, China’s urban unemployment rate was 6.1 percent, 0.3 percentage points higher than in March. Notably, the unemployment rate in those aged 16 to 24 reached 18.2 percent. Major cities, which usually have more stringent zero-COVID restrictions, showed a higher unemployment rate—the urban unemployment rate in 31 major cities was 6.7 percent, according to surveyed data released by China’s National Bureau of Statistics on May 16.

“Small and medium-sized enterprises (SMEs) are facing unprecedented difficulties,” Mike Sun, a U.S.-based investment consultant and expert on China, told The Epoch Times on May 21. “From my knowledge, most of the [SMEs] in Shanghai only have enough cash for two months.”

Sun said it is inevitable for significantly more SMEs to close down in China due to its ongoing zero-COVID approach.

“More people will lose their jobs. We just don’t know the exact numbers,” Sun added while making veiled references to Beijing’s lack of transparency.

Ellen Wan contributed to this report.

Kathleen Li
Kathleen Li has contributed to The Epoch Times since 2009 and focuses on China-related topics. She is an engineer, chartered in civil and structural engineering in Australia.