Since the onset of the pandemic, Wang and her husband borrowed nearly 500,000 yuan (US$78,600) from relatives to keep the garment factory afloat, but they were ultimately unable to cope with the mounting losses.

“Besides that, I have tens of thousands of yuan in credit card debt to pay off,” she said. “Market demand is so weak, so our products could not be sold, and they kept turning into inventory.

“There are so many small business owners just like me.”

That includes Zhang, who said his clients have increasingly delayed payments.

Their situations mirror the results of a quarterly report released late last month by the Ant Group Research Institute and Peking University’s Centre for Enterprise Research and Institute of Social Science Survey.

The report included data from a survey involving 15,569 micro and small enterprises (MSEs), and it shows that the fourth quarter of 2021 saw turnover among MSEs fall to 129,000 yuan on average, from 131,000 yuan in the third quarter.

Among those polled, 46 per cent said that their fourth-quarter turnover was less than 25,000 yuan, 19.1 per cent barely broke even, and 27.2 per cent reported losses.

MSEs that were established before 2019 said their operating income in the fourth quarter of last year was just 30.6 per cent of what they made during the same period in 2019, on average. That marked a further decline from the third quarter of last year, when MSEs earned 36.1 per cent of what they made in the third quarter of 2019.

Furthermore, the average number of jobs created by an MSE was about 4.3 in the fourth quarter of last year, down from 6.9 in the second quarter and suggesting that the health of China’s job market has declined.

According to the most recent official figures from April of last year, China had 44 million MSEs – businesses with an annual taxable income of up to 3 million yuan and no more than 300 employees.

These types of small firms are the backbone of China’s economy, accounting for more than 80 per cent of all job positions, according to state media.

The report also indicated that insufficient market demand and high operating costs remained the main sources of pressure on MSE operators in the last quarter, while their concerns over policy uncertainties and tax burdens significantly intensified compared with earlier last year.

In light of the results, some experts believe China’s MSEs will come under even greater pressure this year, with further operational difficulties.

“China’s exports are expected to drop significantly compared with last year, based on a premise that the pandemic will end later this year, with economic and social production activities returning to normal in both developed and developing countries,” said Simon Zhao, associate dean of BNU-HKBU United International College’s Division of Humanities and Social Sciences.

“Domestic consumption is believed to remain weak this year,” he added. “Once export demand shrinks, a large surplus of products will amass. That will inevitably have a strong impact on [China’s small businesses].”

According to the Small and Micro-sized Enterprise Operating Index Report compiled by the Postal Savings Bank of China in December, 85.9 per cent of MSEs had accounts receivable – money owed by a business to its suppliers, shown as a liability on a company’s balance sheet – and 19.32 per cent of all MSEs indicated a longer term for the return of payments compared with 2020.

That report also said the phenomenon of large enterprises defaulting on payments to MSEs was widespread. As a result, new investment and new hiring declined among MSEs, reflecting a lack of optimism in operators’ expectations for the future.

Peking University’s report also showed that MSE’s tax burden increased in the fourth quarter of 2021, as taxes and related fees as a percentage of operating income climbed to 9.8 per cent, from 8.5 per cent in the first quarter.

According to the China Macroeconomic Analysis and Forecast Report, released in December by the Academic Centre for Chinese Economic Practice and Thinking at Tsinghua University, a tightening of pandemic prevention and control measures has deeply affected the work habits and livelihoods of Chinese residents.

It said this was resulting in consumption being depressed, especially in service sectors such as tourism, hospitality and transport. The recovery of overseas economies this year could also reduce the share of exports, and thus profits, of Chinese manufacturers, lowering the growth rate for employment and the average income of workers, the report added.

It also suggested that the pandemic may have permanently changed the consumption habits of Chinese people, adding that this could drag down overall economic growth by 0.4 percentage points.

“I’m already mentally prepared for a tougher year to come,” said Wang from Dongguan. “I’ll be as frugal as possible and just hope I can pay off some debt.”