SMEs are facing mounting business difficulties. Recently, the General Office of the State Council issued a “Notice on Increasing Financial Assistance to Small and Medium-sized Enterprises” (hereinafter referred to as the “Notice”). The notice increases their financial support and introduces more tax and fee cuts, promotes the new 300 billion yuan ($46.9 billion) loan limit for SMEs, continues to tackle outstanding debts to SMEs, and ensures SMEs have access to the power they need in key industrial chains. In the face of heavy downward pressure on the economy, these initiatives are vital and need to be implemented as soon as possible.
SMEs face both immediate and long-term challenges. The assistance provided should be tailored to help them address difficulties they encounter, and flexible in focus, strength, and implementation pace of support measures. In this process, to verify the effectiveness of the policy, the emphasis should be on making sure that enterprises feel that they get the assistance they need. Even more important is to shape an SME-friendly economic governance system, especially a law-based business environment. The short-term difficulties faced by enterprises are often due to direct causes, such as rising raw material prices, employment difficulties, and expensive labor, as well as the Covid-19 pandemic. However, the biggest challenge for these enterprises is long-term institutional difficulties. If deep-seated problems are not solved, any small bump in the road can leave SMEs in a difficult situation, and it is always difficult for enterprises and government departments to solve these dilemmas. Therefore, it is necessary to offer emergency relief, but it is even more important to provide long-term support. Enterprises should be supported before emergencies occur.
The flourishing of SMEs is the cornerstone of China’s quality economic development. Compared with large enterprises, SMEs have distinctive characteristics and obvious advantages: they are dynamic, willing to take risks, have relatively low trial and error costs, and are better at feeling the pulse of the market to capture market opportunities. In the building of an innovative country, SMEs play an irreplaceable and special role. In some industries lesser known to the public, it is often the SMEs, known as “hidden champions,” that have core competencies. The notice makes it clear that one of the goals of the assistance package is enabling SMEs to become more specialized, upgrade themselves and be more competitive. Of course, SMEs also have salient vulnerabilities, such as weak risk resistance and flawed long-term strategies. The characteristics of SMEs determine the focus and direction of policy support.
The support should be effective, timely and targeted. At the moment, more specific and differentiated initiatives are required for SMEs that have been severely hit by the pandemic in the life services sector. We must not only look at the total amount of support initiatives, but also consider the sense of gain of SMEs, and direct tax and fee reductions are the most effective way to prompt a response from enterprises. It is impossible to implement such meticulous work just by issuing a central document, and it is important that all levels and departments of government work together.
While support is offered in the context of temporary emergencies, building an enabling business environment and a law-based management system in line with the laws of the market economy is the infrastructure needed for the healthy development of SMEs. This holds true for companies of all sizes. Recently, Liu He, member of the Political Bureau of the Communist Party of China (CPC) Central Committee and Vice Premier of the State Council, wrote that “competitive enterprises are the micro foundation of quality development,” and noted that “the stability of the basic economic system and general state policy is essential for micro subjects.” This statement is highly relevant. Only when you have peace of mind can you enjoy your work. Currently, the biggest concern of the entrepreneurial community is precarious policy expectations, as some new policies, abruptly introduced, can be disruptive. The central government has reiterated its commitment to consolidate and develop the public sector economy and to encourage, support and guide the development of the non-public sector economy, which is the base of assurance for private enterprises. In a sense, minimizing unexpected policies is the greatest support that can be given.
Expectations need to be guided in a timely manner, especially when public opinion grows strong, and it is particularly important for the government to release clear signals to reassure businesses that operate within the legal boundaries. In today’s society, it is normal to hear people express different opinions. Entrepreneurs, already exhausted by their busy production and operations, will often just ignore obvious flaws. However, if accompanied by unstable expectations, these flaws will inevitably influence companies’ production and investment decisions, and should therefore not be taken lightly.
The key to optimizing the business environment is to implement the principle of competitive neutrality, treating SOEs and private enterprises equally, and putting small and large enterprises on an equal footing. In 2019, the “Guiding Opinions on Promoting the Healthy Development of Small and Medium-sized Enterprises” issued by the Central Office and the State Office proposed the creation of a fair and easy business environment in accordance with the principle of competitive neutrality, and further stimulate the vitality of SMEs. Currently, there are still various unreasonable regulations for the non-public economy, and hidden barriers have become more common. The various “glass doors” encountered by SMEs violate the basic rules of a fair, open, and transparent market. Compared with large SOEs, SMEs are already in a disadvantaged position in terms of market access and loans. If the principle of competitive neutrality cannot be implemented in the near future, the competitiveness and creativity of SMEs will also be seriously undermined.
Ultimately, the future of SMEs rests on the continuous deepening of institutional reform and the building of a law-based state, where a fair, stable, and predictable business environment serves as a support for all rational business practices. Policymakers have made a clear commitment to allowing the market “to do anything that is not prohibited by law” and that the government “must not do anything unless it is mandated by the law.” Any policy adjustment should be based strictly on the law, and “red-topped documents” (documents with the name of the issuing governmental department printed in red) should be weighed on the scales of justice. This is not only a question of the rise and fall of enterprises but also of the confidence of entrepreneurs and the public in building a law-based state.
Economic analysts sometimes claim that China’s economy is “strong at the macro level but weak at the micro-level,” but in fact, this cannot be the case. The vigor of the macroeconomy depends on the vibrancy of enterprises. SMEs originally needed no extra care, but now, the weak foundation for growth combined with the long-established institutional environment dictates that their development requires extra care from the government and society as a whole. Helping to cope with emergencies and offering bailouts, stabilizing the expectations of enterprises and the public and building a law-based market economy that brings out the best in entrepreneurs is in itself liberating productivity and just what China needs to realize quality development.
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