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China’s smallest firms failing at historic pace as 4.37 million close up shop and registrations plummet
Figures from public registry tracking firm Tianyancha also show that, for the first time in two decades, the rate of deregistration among micro and small businesses surpassed the number of those newly registered in China.
The data is particularly relevant given that Beijing considers the nation’s more than 40 million micro and small firms the “backbone” of China’s private sector, underpinning the national economy. Their struggles are a reflection of broader economic headwinds that analysts say could see gross domestic product (GDP) drop below 4 per cent in the fourth quarter of this year.
During the annual central economic work conference earlier this month, Beijing warned that growth was facing “threefold pressure” of contracting demand, supply shocks and weakening expectations.
It is likely that the number of deregistered companies this year will also exceed that of last year – 4.45 million – which was already a historical high at almost double the rate in 2019 and about 10 times that of 2018, Tianyancha’s data showed.
Each month this year, an average of 397,435 micro and small companies closed in China, surpassing the monthly average of 370,782 last year, when the country was hit hard by the initial outbreaks of Covid-19 that led to widespread lockdowns and the nation’s first quarterly GDP contraction since the end of the Cultural Revolution in 1976.
Nonetheless, 2020 still saw more micro and small firms opening – 6.13 million – than closing, even though that figure marked a sharp decline after several years of growth. And the decline was exacerbated in 2021, as only 1.32 million new micro and small firms opened in the first 11 months of this year.
In their role as the nation’s economic backbone, smaller enterprises account for half of China’s tax revenue, 60 per cent of its GDP and 80 per cent of urban employment.
But they have also suffered the brunt of the economic downturn brought by the pandemic, despite tax and fee cuts from the government.
China’s ongoing zero-tolerance strategyfor controlling the coronavirus has stifled consumption, and sporadic outbreaks have resulted in lockdowns. Meanwhile, fresh challenges continue to mount, including high raw-material prices; soaring freight costs; regulatory crackdowns on technology, education and property sectors; and a power crunch that has affected more than half of the nation’s provinces.
Meanwhile, Zhang noted that there could be a delayed impact on unemployment and bankruptcy rates, which could help explain why the problem is much worse this year than last year.
“Usually those small businesses will carry on at first, but when it comes to the second year, when the cumulative impacts from the deteriorating business environment get even worse, they may see no end in sight, especially amid the zero-tolerance policy,” Zhang said. “Then they go ahead and close their businesses.
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- Ex-finance minister has said official economic indicators failed to paint accurate picture of economy, and publicly available data did not show how many firms vanished
- Only 1.32 million new micro and small firms opened in China during the first 11 months of this year, compared with 6.13 million last year
Figures from public registry tracking firm Tianyancha also show that, for the first time in two decades, the rate of deregistration among micro and small businesses surpassed the number of those newly registered in China.
The data is particularly relevant given that Beijing considers the nation’s more than 40 million micro and small firms the “backbone” of China’s private sector, underpinning the national economy. Their struggles are a reflection of broader economic headwinds that analysts say could see gross domestic product (GDP) drop below 4 per cent in the fourth quarter of this year.
During the annual central economic work conference earlier this month, Beijing warned that growth was facing “threefold pressure” of contracting demand, supply shocks and weakening expectations.
It is likely that the number of deregistered companies this year will also exceed that of last year – 4.45 million – which was already a historical high at almost double the rate in 2019 and about 10 times that of 2018, Tianyancha’s data showed.
Each month this year, an average of 397,435 micro and small companies closed in China, surpassing the monthly average of 370,782 last year, when the country was hit hard by the initial outbreaks of Covid-19 that led to widespread lockdowns and the nation’s first quarterly GDP contraction since the end of the Cultural Revolution in 1976.
Nonetheless, 2020 still saw more micro and small firms opening – 6.13 million – than closing, even though that figure marked a sharp decline after several years of growth. And the decline was exacerbated in 2021, as only 1.32 million new micro and small firms opened in the first 11 months of this year.
In their role as the nation’s economic backbone, smaller enterprises account for half of China’s tax revenue, 60 per cent of its GDP and 80 per cent of urban employment.
But they have also suffered the brunt of the economic downturn brought by the pandemic, despite tax and fee cuts from the government.
China’s ongoing zero-tolerance strategyfor controlling the coronavirus has stifled consumption, and sporadic outbreaks have resulted in lockdowns. Meanwhile, fresh challenges continue to mount, including high raw-material prices; soaring freight costs; regulatory crackdowns on technology, education and property sectors; and a power crunch that has affected more than half of the nation’s provinces.
Meanwhile, Zhang noted that there could be a delayed impact on unemployment and bankruptcy rates, which could help explain why the problem is much worse this year than last year.
“Usually those small businesses will carry on at first, but when it comes to the second year, when the cumulative impacts from the deteriorating business environment get even worse, they may see no end in sight, especially amid the zero-tolerance policy,” Zhang said. “Then they go ahead and close their businesses.
‘Under great pressure to survive’, China’s small firms close at record pace
Just this month, a former finance minister said official economic indicators failed to paint an accurate picture of China’s economy, and publicly available data did not show how many firms had vanished.
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