China’s Small Businesses Are Hit Hard as Economic Recovery Falters
Beijing pushes banks to extend loans to small businesses, with limited success
5 min
China’s small businesses are cutting staff, struggling to pay off debt and nervous about the future. Their plight paints a grim picture of the country’s flagging recovery.
The country’s small and medium-size enterprises are crucial to the economy; they employed around 233 million people by the end of 2018, which was the last time this data was made public. But official data, recent disclosures from lenders and interviews with small-business owners show that many of these companies are suffering.
“The biggest problem for small and micro enterprises now is survival,” said Ji Shaofeng, the founder of a micro loan trade association based in China’s eastern Jiangsu province.
The struggles of China’s small businesses make clear how far the country has to go before it fully recovers from a series of lockdowns, which were part of Beijing’s strict response to the coronavirus.
When the government finally brought an end to its strict zero-Covid policy late last year, many economists expected a strong recovery. It hasn’t arrived. Consumer spending, factory orders and exports are among many indicators showing signs that the recovery is losing steam.
A recent survey of manufacturing purchasing managers in China showed a second consecutive month of contraction for small companies. China’s small-enterprise purchasing managers index is now at 47.9; a reading below 50 shows business activity is slowing.
Scott Yang, a wine and tea seller in Wenzhou, a city in China’s wealthy Zhejiang province, said many local business owners he knows are laying off employees and trying to cut costs, in response to a drop in factory orders.
Small enterprises started to add jobs at the end of the first quarter, when there was still some optimism about a recovery. But a PMI subindex showed employment at small enterprises was 48.7 in May, meaning these companies are either cutting staff or not replacing those who leave.
Huang Yiwen, who sells furniture online in Foshan, in southern China’s Guangdong province, said his business has been hurt by the weak property market, since new-home buyers are a reliable source of demand for furniture makers. Annual home sales fell to a six-year low in 2022, after a slump in the property sector that also led to debt defaults by some of China’s largest developers.
“It’s so hard to sell,” said Huang, regarding furniture.
Less than 40% of small and medium-size enterprises are operating at full capacity, which means producing all of the goods they can, according to the latest survey conducted by the China Association of Small and Medium Enterprises, which sends questionnaires to 3,000 SMEs in the country every month.
Economists warn that the problems facing small businesses can’t be isolated from the wider economy. Because small businesses are such a major source of employment, particularly in large cities, their struggles reflect—and could worsen—wider economic strains.
“If SMEs do not recover, it will be difficult for urban areas to create enough employment and income, which will have a significant impact on low- and middle-income families,” said Dan Wang, chief economist of Hang Seng Bank (China).
Chinese government officials are becoming uneasy about the economy and are planning a series of moves to stimulate growth, The Wall Street Journal recently reported. That could include billions of dollars of infrastructure spending and a loosening of rules in the property sector.
So far, Beijing’s attempts to prop up small businesses have focused mainly on making it easier for them to get funding. That has had limited success.
Since early 2020, Chinese regulators have pushed banks and other financial institutions to extend loans to small businesses that were hurt by the pandemic. In some parts of the country, local divisions of China’s central bank have sought to help small businesses by establishing teams to answer funding-related questions, as well as visiting factories and farms to assess their needs. The government has provided other targeted-relief measures such as tax exemptions and temporary rent reductions.
The total outstanding balance of loans to small and micro enterprises has been climbing, reaching the equivalent of $9 trillion at the end of March, according to data from China’s banking regulator.
Many small businesses in China don’t want to secure new financing unless it helps them clear previous debts. Yang, the wine seller, said that while financing is relatively cheap and easy to get, most local businesses he knows are borrowing only to stay afloat and not to expand.
Lufax, a Chinese internet-lending platform that caters mostly to small-business owners, said last month that about 5.7% of the total loans it facilitated were more than 30 days past due at the end of March. Its loan-delinquency rates, which are higher for unsecured loans, have risen for six consecutive quarters.
MYbank, an internet lender that serves small businesses, said in its latest annual report that the balance of its loans that were more than 30 days past due more than doubled last year. The company, an affiliate of the Chinese fintech giant Ant Group, said the impact of the pandemic and weak consumption last year caused many small- and micro-business owners to face continuous pressure.
Many commercial banks have given borrowers more time to repay their loans, extending their forbearance for small businesses to this year. Small businesses whose loans were due in the fourth quarter of 2022 will have until the end of this month to repay, according to a notice from the central bank and a group of regulators.
Chinese banks have allowed some small businesses to roll over their loans, but if these small businesses are unable to repay in the future, they will eventually have to be recognized as bad loans, said Jay Guo, a former banker and current dean at the Ningbo China Institute for Supply Chain Innovation.
“It only makes sense to extend loans if the economy rebounds and SMEs are able to sell their goods,” said Guo.
Ji, of the micro loan trade association, said that while some sectors such as tourism and catering have rebounded in the past few months, small businesses in manufacturing, trade and other industries are still under pressure as demand remains well below where it used to be.
Small businesses are falling victim to a vicious cycle that is affecting the wider economy, said Xiangrong Yu, chief China economist at Citigroup. The poor performance of some private companies is leading to a loss of confidence, and that low confidence is making it hard for those companies to do better, he said.
“Lack of confidence is both a symptom of the problem and the root cause of the problem,” said Yu.
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The lunar flyby would be the deepest humans have traveled in space in decades.
4 min
It’s go time for the highest-stakes mission at NASA in more than 50 years.
On April 1, the agency is set to launch four astronauts around the moon, the deepest human spaceflight since the final Apollo lunar landing in 1972.
The launch window for Artemis II , as the mission is called, opens at 6:24 p.m. ET.
National Aeronautics and Space Administration teams have been preparing the vehicles to depart from Florida’s Kennedy Space Center on the planned roughly 10-day trip. Crew members have trained for years for this moment.
Reid Wiseman, the NASA astronaut serving as mission commander, said he doesn’t fear taking the voyage. A widower, he does worry at times about what he is putting his daughters through.
“I could have a very comfortable life for them,” Wiseman said in an interview last September.
“But I’m also a human, and I see the spirit in their eyes that is burning in my soul too. And so we’ve just got to never stop going.”
Wiseman’s crewmates on Artemis II are NASA’s Victor Glover and Christina Koch, as well as Canadian Space Agency astronaut Jeremy Hansen.
What are the goals for Artemis II?
The biggest one: Safely fly the crew on vehicles that have never carried astronauts before.
The towering Space Launch System rocket has the job of lofting a vehicle called Orion into space and on its way to the moon.
Orion is designed to carry the crew around the moon and back. Myriad systems on the ship—life support, communications, navigation—will be tested with the astronauts on board.
SLS and Orion don’t have much flight experience. The vehicles last flew in 2022, when the agency completed its uncrewed Artemis I mission .
How is the mission expected to unfold?
Artemis II will begin when SLS takes off from a launchpad in Florida with Orion stacked on top of it.
The so-called upper stage of SLS will later separate from the main part of the rocket with Orion attached, and use its engine to set up the latter vehicle for a push to the moon.
After Orion separates from the upper stage, it will conduct what is called a translunar injection—the engine firing that commits Orion to soaring out to the moon. It will fly to the moon over the course of a few days and travel around its far side.
Orion will face a tough return home after speeding through space. As it hits Earth’s atmosphere, Orion will be flying at 25,000 miles an hour and face temperatures of 5,000 degrees as it slows down. The capsule is designed to land under parachutes in the Pacific Ocean, not far from San Diego.
Is it possible Artemis II will be delayed?
Yes.
For safety reasons, the agency won’t launch if certain tough weather conditions roll through the Cape Canaveral, Fla., area. Delays caused by technical problems are possible, too. NASA has other dates identified for the mission if it doesn’t begin April 1.
Who are the astronauts flying on Artemis II?
The crew will be led by Wiseman, a retired Navy pilot who completed military deployments before joining NASA’s astronaut corps. He traveled to the International Space Station in 2014.
Two other astronauts will represent NASA during the mission: Glover, an experienced Navy pilot, and Koch, who began her career as an electrical engineer for the agency and once spent a year at a research station in the South Pole. Both have traveled to the space station before.
Hansen is a military pilot who joined Canada’s astronaut corps in 2009. He will be making his first trip to space.
Koch’s participation in Artemis II will mark the first time a woman has flown beyond orbits near Earth. Glover and Hansen will be the first African-American and non-American astronauts, respectively, to do the same.
What will the astronauts do during the flight?
The astronauts will evaluate how Orion flies, practice emergency procedures and capture images of the far side of the moon for scientific and exploration purposes (they may become the first humans to see parts of the far side of the lunar surface). Health-tracking projects of the astronauts are designed to inform future missions.
Those efforts will play out in Orion’s crew module, which has about two minivans worth of living area.
On board, the astronauts will spend about 30 minutes a day exercising, using a device that allows them to do dead lifts, rowing and more. Sleep will come in eight-hour stretches in hammocks.
There is a custom-made warmer for meals, with beef brisket and veggie quiche on the menu.
Each astronaut is permitted two flavored beverages a day, including coffee. The crew will hold one hourlong shared meal each day.
The Universal Waste Management System—that’s the toilet—uses air flow to pull fluid and solid waste away into containers.
What happens after Artemis II?
Assuming it goes well, NASA will march on to Artemis III, scheduled for next year. During that operation, NASA plans to launch Orion with crew members on board and have the ship practice docking with lunar-lander vehicles that Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin have been developing. The rendezvous operations will occur relatively close to Earth.
NASA hopes that its contractors and the agency itself are ready to attempt one or more lunar landing missions in 2028. Many current and former spaceflight officials are skeptical that timeline is feasible.
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