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China’s no-coronavirus policy tests small businesses for a successful year or it falls apart

China's no-coronavirus policy tests small businesses for a successful year or it falls apart

Shanghai is in a two-part lockdown and has announced a tax break of about 140 billion yuan ($21.88 billion), according to state media. The eastern half of China’s financial center is closed as authorities test all city residents in an effort to contain the epidemic.

Yu Ruen | Future Publishing | Getty Images

BEIJING — As China tries to weed out Omicron, the country’s no-coronavirus policy of rapid shutdowns is putting small businesses for a third year of uncertainty about stopping and starting.

It is a critical time for this part of the Chinese economy. The People’s Bank of China said in 2018, before the outbreak of the epidemic, that the country’s medium and small-sized businesses have an average lifespan of three years.

Although SOEs play an important role in China’s economy, smaller non-SOEs are responsible for The majority of national growth and jobs.

With the worsening of the Covid situation this year, central and local governments have issued some support measures – such as rent breaks and tax refunds for some affected small businesses, especially in service industries.

Shanghai, which is subject to a two-part reservation This week it announced a tax exemption of about 140 billion yuan ($21.88 billion), According to state media.

An economic analyst, who requested anonymity to speak freely about the impact of Covid policy on growth, said that many small businesses “don’t have any income, so cutting taxes and fees is no longer feasible”. China. This is according to CNBC’s translation of Chinese.

The analyst said companies are looking to government policies to get a clearer idea of ​​whether it’s worth sticking with for another year. Now “small businesses don’t have enough confidence. They can’t see how the pandemic will go.”

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China’s Ministry of Commerce was not immediately available for comment ahead of a weekly news conference on Thursday afternoon. The Ministry of Industry and Information Technology did not immediately respond to a request for comment.

Mainland China is trying to control the worst outbreak of the Covid virus since the initial shock of the epidemic in early 2020 sent the economy into recession. The country returned to growth within weeks using lockdowns to control the spread of the virus locally.

China has stuck to the no-spreading COVID policy for the past two years, while other countries have switched to a more flexible “live with COVID” policy in the past several months. The mainland has reported far fewer Covid cases or deaths than other major countries.

Even with the past few weeks of sporadic lockdowns and travel restrictions around key economic zones, other parts of the country have been less affected. Anecdotally, the streets of Beijing are still filled with a fairly normal amount of traffic.

China’s National Bureau of Statistics said earlier this month that the impact of Covid would be more felt when it came at the local level from the national level.

Chinese Center for Disease Control and Prevention He warned in November that the coexistence strategy would likely lead to hundreds of thousands of new daily cases and devastate the national medical system.

If the Covid situation remains severe, it will allow policy makers more flexibility in how close GDP comes to a target of about 5.5%, Zong Liang, chief researcher at the Bank of China, said growth above 5.1% is also possible.

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Zong said that government policy cannot help all companies, noting that companies that can survive these three years will likely have a stronger risk tolerance.

Small companies vs big companies

Small businesses have struggled disproportionately while the overall Chinese economy has grown in the past two years.

The official PMI for small firms, an indicator of market conditions, consistently reflects worse sentiment than large firms. It has remained in the contraction zone below 50 since May 2021.

Small business PMI rose to 46.6 in March from 45.1 in February, while small business PMI fell below 50 for the first time since October, according to official data released Thursday. Large corporate PMI holding above 50 with print of 51.3.

The high susceptibility of the omicron variant behind the recent wave of cases in China has made the outbreaks more difficult to track and control, Local governments said.

In hard-hit areas such as the northern Jilin Province and the southern city of Shanghai, the number of new daily cases from the National Health Commission has remained high over the past few weeks.

There is an increasing number of new cases reported asymptomatic, outnumbering asymptomatic cases. More than 6,600 such cases were reported Wednesday on the mainland, most of them in Shanghai. That’s significantly higher than the 355 new confirmed cases that had symptoms today.

business turmoil

To control the sudden rise in Covid cases, local authorities have announced the closure of city neighborhoods or individual buildings with only hours’ notice, which could disrupt pockets of business.

While large companies that run factories have sometimes said they can maintain production by keeping workers on site, companies that rely on storefronts or in-person interaction face greater uncertainty.

Anecdotally, a trip down a Beijing street – near buildings closed last week due to the Covid connection – found that nearly all 15 storefronts on the north side were closed, while those on the south side were open.

Read more about China from CNBC Pro

Also last week, police had to intervene in a dispute in which merchants sought Covid-related rent waivers at a large wholesale clothing market in Hangzhou, near Shanghai, According to the state-run China Internet Information Center. The report quoted market managers as saying that they had not yet heard of rent waivers at the local level, and claimed that “the epidemic must end” before such waivers could be considered.

CNBC was unable to independently obtain a response from market operators or traders.

Earlier in the month, the Hangzhou government said it had closed the market to combat Covid but the health risks were over as of March 18.

The state-run media report from China Internet Information said last week’s incident reflected a local failure to implement a central government document issued on Feb. 18.

In the policy document, China’s largest economic planner and 13 other government ministries announced support for service firms, including calls for rent waiver or reductions if the owner is a state-owned enterprise in a medium or high-risk COVID designated area.

The document also called on local authorities not to arbitrarily expand high-risk areas to tightly control the Covid virus, or to arbitrarily restrict areas to freedom of movement.