SMEs need help to overcome outbreak-related hardships

Small and medium-sized enterprises play a key role in boosting economic growth, creating employment, improving people's livelihoods and promoting innovation in China. SMEs account for up to 90 percent of China's domestic market players, and contribute to about 50 percent of tax revenue, 60 percent of GDP, 70 percent of technological innovation and 80 percent of urban employment.

In the wake of the novel coronavirus outbreak, governments at various levels have taken multiple measures to help the SMEs overcome difficulties, laying a solid foundation for the economy to rebound after the epidemic is contained, which will help China achieve its economic and social goals.
As China continues the fight to contain the outbreak, the SMEs have encountered difficulties on both supply and demand sides. To begin with, there has been a large-scale decline in demand. To prevent and control the spread of the novel coronavirus and eventually win the battle against it, strict restrictions on the movement of people and vehicles have been imposed, which have reduced consumption demand, especially in the hotel, catering, transportation, tourism, entertainment and retail sectors.

A huge number of SMEs are part of these sectors. Statistics show that the turnover of about 60 percent of the SMEs will decline by more than 20 percent, while that of 30 percent will decrease by over 50 percent.
Second, the impact of the novel coronavirus outbreak has been immense on the supply side, too. This will have a serious impact on the traditional service sector and the labor-intensive manufacturing industry, which mainly consist of SMEs.

Domestic demand, movement of people and transportation of materials are unlikely to return to normal in the short term, increasing the difficulties of enterprises, especially the SMEs, in resuming normal operations. So far, according to official data from the Ministry of Industry and Information Technology, the operation resumption ratio of the SMEs was about 60 percent by March 13. If the enterprises are unable to resume normal operation, their revenue will sharply decline, even to zero, while they have to continue paying human resources and material costs, and rentals.
Therefore, the authorities should provide fiscal assistance for the SMEs to reduce their short-term costs and losses, in order to help them cope with their operational difficulties in the medium term. The government should also encourage other stakeholders to help the SMEs in these difficult times.
Recently, the central and local governments have launched multiple policies to support the SMEs including addressing their raw material and transportation problems, deferring the payment of their electricity, water and gas charges until the epidemic is fully contained, exempting them from paying part of their social security fees, and granting them special loans.

The SMEs are the largest employers and major source of economic vitality in China. Yet they don't have the capacity to cope with emergencies such as the coronavirus outbreak, and the restrictions on the movement of people, vehicles and goods. So the government should implement targeted policies and measures to reduce the negative impact of the epidemic on the SMEs, because after the outbreak is fully contained and demand rebounds, the SMEs will continue to boost the economy. Only in this way can we prevent economic activity from falling below a reasonable range, and minimize the short-term impacts of the epidemic.

The author is a professor of economics at the Renmin University of China. The views don't necessarily represent those of China Daily.