Protection of Small and Medium Enterprises in China

Introduction

In China, SMEs have largely emerged in the previous 15 years. Private SMEs were eventually acknowledged as being crucial to the nation’s economic development with the opening up of China to the market economy in the 1980s as part of the market-oriented reforms implemented by Chinese leader Deng Xiaoping. State-owned companies (SOEs) in China were affected by the succeeding economic reforms; major SOEs quickly transitioned into small and medium non-SOEs till the end of 2004. In the meantime, the implementation of the non-SOE promotion strategy encouraged the growth of additional SMEs. Since that time, town and village enterprises (TVE), private businesses, and independent contractors have all sprung and thrived across China. The rise of SMEs has becoming more and more important for China’s economy. Today, they comprise more than 99 percent of all businesses in China. More than 82 percent of China’s job prospects are created by SMEs, whose production value represents at least 60 percent of the nation’s GDP. SME clusters produce and disseminate innovations, increase SMEs’ global competitiveness, and provide widespread benefits.

[Image Source: Freepic]

The rules for categorising SMEs are outlined in the Interim Categorizing Criteria on Small and Medium-sized Enterprises (SMEs), which was issued in 2003 and is based on the SME Promotion Law of China. It replaced the previous standards that went into force in 1988 and the addendum standards that were established in 1992. In China, a SME is defined in a very broad sense and can even include rather large businesses. The definition of a SME varies between APEC (Asia-Pacific Economic Cooperation) economies, although it is typically based on the number of employees. Most SMEs have between 100 and 500 employees. However, the vast majority of SMEs—roughly 70%—are either owned by sole proprietors or employ no more than five employees. SME definition in China depends on the industry category and is defined based on the number of employees, annual revenue, and total assets comprising a company.

A severe economic shock brought on by the novel coronavirus’s global proliferation may be even worse than the 2008 global financial crisis. Since China is the epicentre of the early outbreak, China has taken the brunt and experienced significant economic development setbacks. All businesses in China will put off starting up again after the 2020 Spring Festival, with the exception of those that make medical supplies. Small and medium-sized enterprises (SMEs) in China returned to work at a rate of 76.8% on March 29, however the effects persisted for a considerable amount of time. With a 6.8% fall year over year in the first quarter, health occurrences had a significant negative impact on China’s economy. In contrast, our GDP expanded by 3.2% in the second quarter. Thus, China’s epidemic prevention is very successful, only a few months.

Chinese businesses are hampered by the epidemic and have little time for routine maintenance. Among them, 67.1% can hold out for two months, and 85.01 can hold out for a maximum of three months. By the end of 2018, China will have more than 30 million SMEs, more than 70 million individual industrial and commercial homes, and more than 60% of the world’s gross domestic product (GDP), 70% of the world’s technological advancements, and 80% of the world’s employment.

A consequence of the outbreak’s adverse effects on SMEs is obvious given their fragility and ongoing need to sell in order to generate cash flow. SMEs have a disadvantage over large businesses in terms of funding, innovation, and other factors. Small and medium-sized businesses (SMEs) have a relatively limited number of financing options, and the capital chain is overly simplistic. The outbreak breaks the capital chain and causes SMEs to fail. There are also particular financial compensations for orders that cannot be filled because of the epidemic. Operating income serves as the main source of capital for SMEs in the service sector. They will run out of capital once they quit operating. The office structure for staff in businesses has also been adjusted in light of the epidemic’s closure. SME’s must have a complete online office system in order to combine online and offline offices. Employees are free to choose how they want to spend their working hours, and the company can use the online work platform to evaluate how well they are doing. Innovation in management techniques, systems, and the enterprise happens at the technical level. SME innovation still needs to be improved because of capital constraints.

The pressure on SMEs to survive is increased by the situation of shutdown and production, sales difficulties, and investment decline, along with the ongoing pressure of rigid expenditure like rent and interest, combined with other factors like the expiration of accounts payable at the end of the year.

Conclusion

The government must make sure that programmes supported with tax dollars are beneficial to society as a whole, address market inefficiencies, and respond to business demands. Additionally, it must ensure that the network of business support services offers the specific assistance to firms. Government services are significantly impacted by the process of business expansion, which must be acknowledged by policymakers at the national and regional levels in order to find solutions. Brokerage services on training are frequently essential for many small businesses, in addition to making sure that employers receive high-quality training from schools and private institutional providers.

Since the beginning of 2020, China’s small and medium-sized firms (SMEs) have had to contend with a variety of difficulties, including the economic shock caused by the coronavirus pandemic, rising commodity costs, and regulatory difficulties. The second-largest economy in the world benefits greatly from SMEs. At the end of 2019, small businesses employed over 80% of all non-government workers in the country. Smaller businesses play a significant role in China’s technological industry. In China, there were over 200,000 SMEs in the technology sector last year, with the hi-tech manufacturing industry growing by 7.1%.

Author: Tanya Saraswat, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.