Bright days ahead for key small firms

Things have been tough lately for Changzhou Hengfeng Special Conductor Co Ltd, a small, high-tech enterprise in Changzhou, Jiangsu province. Since the city's COVID-19 flare-ups in April, around a quarter of the company's products started piling up at its warehouse.

"Our products previously were shipped from 8 am to 5 pm. But then, because of slowing logistics, we were only able to send out goods during limited hours in the afternoon," said Yang Nianxi, the company's head of production.

The overstocking problem left the company with a hole in its budget amounting to 70 million ($10.5 million) to 80 million yuan, creating a big cash flow problem.

Similar problems have happened to a number of small and medium-sized companies due to the pandemic. They have faced hardships like delays in supply chains, a drop in market demand and higher labor and raw materials costs.

In China, SMEs are responsible for nearly 50 percent of the nation's tax revenue and 60 percent of GDP. They also contribute to 70 percent of the nation's technology innovation and 80 percent of urban employment, according to the Ministry of Industry and Information Technology.

To help SMEs cope with the pandemic's fallout, the Chinese government has launched a package of policies. The State Council recently released a document that detailed a string of measures to prop up the ability of SMEs to survive the short-term challenges.

The document said that large, State-owned commercial banks will work to increase loans to small and micro enterprises by 1.6 trillion yuan this year.

Local governments are also expected to arrange special bailout funds for micro, small and medium-sized enterprises, and provide subsidies for rent, loan interest and other aspects to those with operational difficulties, the document added.

Hengfeng Special Conductor obtained a specialized loan of 60 million yuan from the Bank of China's subsidiary in Changzhou with the help of the local government. The bank lowered the company's interest rate, in accordance with the central government's policy, from 4.8 to 3.5 percent.

Thanks to the timely assistance, the company has resumed smooth operations, and revenue has returned to its average monthly level this month, it said.

"More efforts will be made to help SMEs lower operating costs, ease their difficulties in accessing funding and debt collections, and assist them in expanding demand," said Xu Xiaolan, a vice-minister from the Ministry of Industry and Information Technology (MIIT).

"Given that SMEs are more vulnerable to fluctuations in supply and industrial chains, MIIT is also strengthening its push to include key SMEs in a list to help them restart operations as soon as possible," she said.

Xu said average tariffs of SMEs' broadband and private internet lines will be reduced by another 10 percent this year, while encouraging digital service providers to reduce SMEs' cloud platform costs, so that they can better leverage digital technologies to boost efficiency amid difficulties.

Meanwhile, China will boost the full integration of all spheres of small, medium-sized and large companies－including industrial, supply and data chains－to promote advantageous interactions, according to a document jointly released recently by the MITT and 10 other ministries.

The move is partly designed to leverage the capabilities of established companies to help SMEs, which will help stabilize industry and supply chains, officials said.

The document said a new ecology made up of enterprises of all sizes and featuring coordination, efficiency, integration and smooth operations, will be formed to shore up industrial and supply chains.

It proposed guiding large enterprises to share their design and development abilities and open up their equipment and laboratories to smaller counterparts.

It also calls for providing small businesses with free access to project libraries and databases and matching their industrial chains with corresponding large companies to advance the integration process, the document said.

Yang Yuanqing, chairman and CEO of Lenovo Group, said established companies such as the information technology giant should play a bigger role in driving the joint innovation and development of SMEs in the upstream and downstream segments of industry and supply chains.

According to Lenovo, SMEs account for 44.5 percent of the company's industry chain, and it will offer them help such as financing and marketing resources, especially for those with core technologies.

Though difficulties created by the pandemic are temporary, SMEs have become less confident about their future, industry officials said. The China Association of Small and Medium Enterprises reported that the market expectations of SMEs remain weak.

The SME Development Index, based on a survey of the performance of 3,000 businesses, decreased by 0.3 percent to 88.3 in April from the previous month. This is the third consecutive month of decline for the index, which is lower than that of the same period a year prior.

Subindexes for industry, construction, transportation and postal services, wholesale and retail as well as hospitality and food services all showed a drop from a month ago.

In an interview with China Daily, the official in charge of a smartphone component manufacturing company in Shenzhen, Guangdong province, said that if his factory stopped for one week, he would lose gross income of 2 million yuan, with net economic losses of over 300,000 yuan.

"But I am more worried about losing customers," said the official, who didn't want to be named. "If I stop, clients will definitely find other companies to manufacture their goods," he said. "It is difficult to develop a customer, but it is easy to lose one."

Wang Peng, associate professor at the Hillhouse Research Institute at the Renmin University of China in Beijing, said China's economy will continue to have good momentum if private and smaller businesses remain sound, given that many of them are increasingly being recognized for their role as leaders for new concepts and new business models.

"But in reality, they tend to become vulnerable to external pressures. Thus, more targeted efforts are needed to help boost their core competitiveness over the long term," he added.

That also reflects the country's big-picture emphasis on developing little giant companies, experts said. Little giant companies mainly refer to SMEs that specialize in niche sectors, command a high market share, and have strong innovative capacity.

From 2021 to 2025, the nation aims to nurture 10,000 little giant companies, officials said. That goal marks an important strategic step to boost the resilience of the manufacturing chain by making it more self-supporting, thus encouraging the vitality of SMEs in the sprawling industrial economy, experts said.

A report from CITIC Securities showed that little giant companies grew more than other SMEs last year, meaning such companies were less affected by the pandemic and were still growing rapidly.

"For any country, innovation capabilities and well-rounded supply chains have played an increasingly prominent role in economic development, especially when economic uncertainties continue to grow around the world," said Li Chao, chief economist at Zheshang Securities.

"These little giant companies, which are able to fill in certain weak points for the country, will help improve the industry and supply chains and enable the country to weather more uncertainties in the future," he said.