China’s vulnerable small businesses have had it up to arrears – they need to be paid as policies fall short, survey finds

Shrinking market demand and outstanding billables continue to plague small and micro-sized Chinese firms, leaving struggling owners feeling lost at sea

Reports of unsustainable cash flows are rising, threatening sector that is considered vital to employment as debt concerns mount

3-MIN READ3-MIN

Newly released findings from a quarterly survey reflect how China’s small and micro-sized businesses continue to struggle. Photo: AP

Published: 8:00am, 29 Feb 2024Updated: 9:11am, 29 Feb 2024

China’s small businesses say shrinking market demand is their biggest pain point, while payment delays are also compounding the challenges facing their daily operations, according to recent findings by Peking University.

The results, based on a survey of 9,252 small and micro-sized firms across the country in December, reflect how the country’s beleaguered economy has yet to elevate the employment-vital sector to its pre-pandemic levels.

“A significant factor contributing to the operational challenges of small and micro-sized enterprises is the substantial proportion of outstanding receivables,” said the quarterly report, which has been tracking the operations of small businesses since 2020.

Among the surveyed enterprises, 71 per cent reported having outstanding receivables, with construction and manufacturing industries being most seriously affected.

The average value of arrears reached 103,000 yuan (US$14,300), representing around two-thirds of the quarterly income for small and micro-sized businesses.

Failing to receive timely payments, which the report largely attributed to high debt levels among local governments, has led to “insufficient cash flows and disruptions in the supply-chain funding”, and businesses said this was “exacerbating their operational challenges”.

The percentage of small and micro enterprises reporting unsustainable cash flows saw a slight increase to 10.8 per cent in the last three months of 2023, up from 9.9 per cent in the third quarter, the report said. Meanwhile, the proportion of enterprises whose cash-flow sustainability had dwindled to less than one month rose from 20.6 per cent to 30.4 per cent.