What does the Year of the Tiger hold for China's SMEs?

2021 saw many small businesses shutting down in China due to numerous challenges, and 2022 is likely to be a tough year too. SMEs may begin the year on a muted note due to the government’s zero-Covid policy, which has led to lockdowns and restrictions, and may point to another year of supply and demand shocks.

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It is not just pandemic-related disruptions that are impacting SMEs. The Chinese government's regulatory crackdowns on the technology, education, and property sectors could lead to non-payment of bills to suppliers that do business with companies in these sectors.

Rising input costs, such as high prices of electricity and raw materials, are constraining SMEs in the manufacturing sector. Additionally, they are also experiencing difficulties in booking shipping containers due to less bargaining power. That causes delays in orders and thus cash flow issues. 

All these challenges have forced SMEs to cut production and reduce staff just to survive. Many have already lost this battle. In 2021, 4.5 million SMEs shut down — that's 10% of China's SMEs, and a number which is more than three times the number of new businesses registered during the same period.

Small businesses in China contribute about 50% of the government’s tax revenue, 60% of GDP, and employ about 80% of the urban working population. Hence, to help them survive, the government will continue to provide tax and fee cuts and the central bank will provide capital to banks to extend more loans to SMEs under a new scheme that will run through June 2023.

But even with these cushions, internal invoicing processes and maintaining customer relationships are crucial to survival. If SMEs pursue the eight aspects of the Virtuous Revenue Cycle discussed in our book Let the Cash Flow, they will be way ahead of their competitors in terms of ensuring that they get paid on time.

Get more tips on effective cash flow management from our book, Let the Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com