Small, medium firms put up steady Q2 performance

China's Small and Medium Enterprises Development Index stood at 89.4 in the second quarter, with a steady recovery of the private sector during the period.

The China Association of Small and Medium Enterprises said on Tuesday that the index, which is generated based on the performance and expectations of 3,000 SMEs, remained at the same level of 2023, and is higher than that of 2022 during the COVID-19 pandemic.

Specifically, the subindex for social services edged up 0.2 point in the second quarter compared with the first quarter. Orders, sales and profits among social service providers all saw a rebound during the period.

However, industrial, construction, transportation and storage, wholesale and retail, as well as hospitality and catering sectors saw a slight decrease compared with the first quarter.

Notably, the property orders and sales index witnessed an increase over the period. The subindex for information transmission and software remained at the same level as seen in the first three months.

Hua Jiansheng, deputy general manager of Dongguan Yihong Precision Technology Co Ltd, said sales of its products maintained a growth momentum since the beginning of the year.

The small firm, with less than 50 employees, produces 300,000 type-C connectors per day. Its clients include big names like Japanese gaming giant Nintendo and Chinese smartphone maker Xiaomi Corp.

"The growth is expected to continue with the expected recovering demand of consumer electronics in the second half," Hua said.

But he conceded that there is still pressure in the second half given the global economic slowdown and rising geopolitical tensions.

Such pressure was reflected in the subindexes gauging sentiment toward the macroeconomy, market and operations, which dropped 0.3,0.4 and 0.3 point, respectively, compared with the previous quarter, said the China Association of Small and Medium Enterprises.

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

Ma Bin, executive vice-president of the association, said that the fundamentals of the Chinese economy remain unchanged, and the country still has sufficient potential, strong resilience, large room for maneuvering and multiple policy tools, despite complicated domestic and international challenges.

"We expect that in-depth reform and high-level opening-up will inject strong impetus into the development of SMEs, and that the scientific and technological revolution and industrial transformation will bring new opportunities for the quality and upgrading of such companies," Ma said, adding that favorable factors still outweighed unfavorable ones, in terms of future development.

Against the backdrop of sluggish global economic recovery, the Chinese authorities made great efforts to guide SME development and launched a series of supportive policies beginning last year.

For example, the State Taxation Administration and some other ministries have introduced or extended a string of preferential policies, especially tax and fee cuts, for SMEs. Many of them have enjoyed major pretax deductions on research and development expenses.

The pretax deduction of R&D expenses is a preferential tax policy. If a company incurs 10 million yuan ($1.4 million) in R&D expenses that do not result in intangible assets and are recorded as current expenses, the company can deduct 100 percent of the expenses incurred, in addition to the pretax deduction of 10 million yuan that is already granted by law.

Yang Bing, founder and CEO of Dewu App, an e-tailer of fashion brands, said such efforts have helped the company improve its technological innovation capabilities and accelerate its digital transformation.

Furthermore, they enhance the competitiveness of the company's overseas business, and help drive innovative development of the country's modernization, Yang said.

He added that Dewu has developed artificial intelligence-powered identification equipment that can recognize genuine branded goods from counterfeits in a flash. With an accuracy rate of over 99 percent, the gadget can identify more than 100 brands of current sneakers.