The Coronavirus Disease (COVID 19) outbreak has become a pandemic that affects global trade patterns and connectivity. United Nations Conference on Trade and Development (UNCTD) predicts a global economic recession. On the global level, Micro, Small and Medium Sized Enterprises (MSMEs) are especially challenged to sustain their business operations due to restrictions on mobility internationally. According to International Labour Organisation’s Report on COVID-19 and the world of work: Impacts and Responses, despite the existing influence on the health of some of the MSME owners and hired employees, travel restrictions and quarantine measures in their home countries limit the trading capacities of the companies. Customers, in China and beyond, are also limiting their amount of purchase during the pandemic period. Both the demand and supply sides are challenging the operation of MSMEs.
ILO suggests that, large-scale fiscal and monetary policies are necessary to stablise the economy, while social protection mechanisms are also essential to mitigate the social impacts of the potential loss of employment, lowered productivity capacities of workers and the restrained consumption among workers and their families due to the reduced income.
China’s measures to support domestic MSMEs
To buffer the economic shock on the global scale, OECD encourages governments to remove trade restrictions to promote people’s confidence, provide short-term employment schemes for the unemployed, cash transfers to the self-employed and special support packages for SMEs in a bigger scheme of delayed tax payments and VAT reductions or deferrals.
Chinese economy has been influenced by the pandemic since the early stage of the outbreak. Based on China Europe International Business School (CEIBS)’s first hand data and desk research data collected from China’s National Bureau of Statistics and Zhejiang MYbank, among all Chinese market participants, there are more than 90% being small and micro enterprises. Furthermore, averagely, every self-employed person provides additional 2.37 jobs. Since the outbreak of the pandemic, Chinese business activities have been influenced due to the slowed circulation of raw materials, labour productivity, logistics and sales. Around 70% of shops face difficulties such as being unable to operate normally or being forced to shut down in China due to COVID 19. To support domestic SMEs to rebound, China’s Central Government and local governments have taken a series of cushioning economic measures.
On the supply side, Chinese government has implemented a series of easing measures, symbolic ones include:
Based on China Europe International Business School (CEIBS)’s first hand data and desk research data collected from China’s National Bureau of Statistics and Zhejiang MYbank, among all Chinese market participants, there are more than 90% being small and micro enterprises. Furthermore, averagely, every self-employed person provides additional 2.37 jobs. Since the outbreak of the pandemic, Chinese business activities have been influenced due to the slowed circulation of raw materials, labour productivity, logistics and sales. Around 70% of shops face difficulties such as being unable to operate normally or being forced to shut down in China due to COVID 19. To support domestic MSMEs to rebound, China’s Central Government and local governments have taken a series of cushioning economic measures.
Technology supporting Work Resumption: On the supply side, the government supports its MSMEs to identify alternative ways to resume work. As announced by the Ministry of Industry and Information Technology of the People’s Republic of China, local governments are instructed to invest in their research and promotion of AI, Virtual Reality, Cloud platforms, internet of things and Fintech to support the local industries to function online.
Eased Value Added Tax rate: The Ministry of Finance announces that, from 1 March to 31 May, MSMEs in Hubei Province are not obliged to pay VATs; SMEs in other provinces or autonomous cities in China are obliged to pay a lower tax rate of 1% on taxable sales revenue if their previous VAT rate was set at 3%.
Banks’ targeted supporting measures: The Central Government has raised the line of credit for business loans with specific purposes to 350 billion RMB in commercial banks, specifically lending funds to MSMEs in the private sector. All enterprises in Hubei and MSMEs across China are not obliged to pay back their loans until 30 June. A low interest rate of 2.5% is set for MSME’s loans. In addition, the Ministry of Finance also promotes provincial and autonomous municipal governments to distribute the government subsidies to the commercial banks and enable the provision of government subsidised loans for COVID-19 affected local businesses.
Supportive customs policies for global traders: The General Administration of Customs, P.R. China (GACC) announced on 13 March that, to ease the procedure for domestic and foreign exporters, businesses which have their cargo encountering difficulties to enter or exit China’s border, and have already applied for three times of short term extension, are now legitimate to apply for a maximumly six month extension of their entry or exit permit. They are permitted to bring their products into or out of China with a ‘Temporary Consignee/Consigner Permit for Exporting and Importing purposes”. The application of extension can be carried out on the “Internet + GACC” online platform.
Developing a “Smart +” ecological system for consumption: while more people are switching to online shopping during COVID 19, the NDRC, together with other government agencies including MIIT, MOF and the Ministry of Agriculture and Rural Affairs (MARA) are advancing the technological infrastructure across China’s urban and rural regions. They are preparing for all businesses, communities and commercial organisations to effectively develop “Smart stores”, “Smart Street” and “Smart Commerce” for more efficient sales, purchases, acquisitions and investment. A “Smart +” environment, essentially, aims to respond to modern consumers’ need to timely connect their demand with the corresponding suppliers. In addition, “Smart Street” system will also capture households’ information and help the government to provide targeted social support for families in need.
Enhancing household income: lending out relatively more national debts and diversify the wealth management products while strictly invigilate the existing products to rule out potential risks.
TVET Education: Empower people who are influenced by the pandemic by providing corresponding continuing education programmes.
Improving product quality in the market: By utilising existing technologies, help businesses innovate to enhance the quality, environmentally friendliness and logistic efficiency of the products and services in China. For quality imports, the Customs Duty has been reduced.
To help Chinese domestic and foreign business leverage full capacity of the policies China’s Central and local governments has developed to ease the compliance burdens the businesses encounter due to difficulties caused by COVID-19, China Briefing summarised a list of China’s support policies. The list is being renewed regularly for updated information sharing.
COVID-19’s impacts on Trading with China
The epidemic situation in China, the largest regional importer of fruits and meat products in Asia, has significantly impacted on agricultural exports from Mongolia, Cambodia, Laos and Vietnam. In the short term, products are expected to take longer time to enter the Chinese market due to sterilisation, shipment congestion and longer inspection time at the Customs. In the long run, food security is likely to remain one of China’s main concerns. Therefore, new regulations and innovation will occur within China’s custom processes and e-commerce platforms.
Short term impacts on trade with China:
1. Impacts on Cargo Transportation in China
|Air Freight||All airports are operational (except Wuhan) for commercial flights. Airfreight capacity is lower than normal due to the recent cancellations and the high demand of delivery.|
|Sea Freight||All major ports and terminals in China are open. Shipping Line offices are operating but staff working on shift duty. Due to the several repercussions of the COVID-19 outbreak globally, vessel schedules have been strongly impacted; blank sailing is expected by April 2020. Spacing issues for shipping cargo may be provoked. Barging services have been resumed.|
|Rail||Railway services have come back to normal in Xi’an, Hefei, Xiamen, Chengdu, Zhengzhou, Yiwu and Wuhan.|
|Road||Inland trucking service is back to normal. Except not wholly in Hubei, the pick up in Wuhan is also possible but need to check case by case, the service remains overall workable.|
|Logistics||Warehouses have been re-opened and operational, back to normal.|
Table Adapted from: Bansard International’s Field Research on 25 Mar 2020
2. The temporary closure of border gates: from the inception of COVID 19 to the end of February, some of the border gates between China were temporarily closed. China’s import procedures have come back to its convention in March, although the compulsory sterilisation of products and vehicles normally extends the lead time by one or two days.
3. The lack of personnel at the Customs during COVID 19 potentially slows the product inspection procedure. As mentioned before, to ease the importing and exporting procedures, GACC allows businesses which have applied for three times of extension of their exit/entry permit to extend their granted permission to maximumly six months.
4. China’s quarantine policy during COVID 19 also stimulated higher demand of meat products for Chinese consumers. The Ministry of Commerce of the People’s Republic of China (MOFCOM) published The Notice to actively import products to tackle related challenges caused by the Coronavirus Disease on 3 February 2020. MOFCOM especially denotes to enhance the supply of meat via quality imports.
Long term impacts for trade with China:
In the long run, the Ministry of Agriculture and Rural Affairs (MARA) expects that government agencies such as themselves and the General Administration of Customs (GACC), and Chinese consumers are likely to pay more attention on food safety and healthy dietary during and after COVID 19. China’s orientation to connect its many sectors via big data and to realise the automation of the entire clearance process also indicates reforms of the General Administration of Customs (GACC). During the required quarantine periods, e-commerce and e-finance have played essential roles to ease the shopping experience of Chinese consumers and provide in-time medical supplies for hospitals and households (MOFCOM). During COVID 19, some Chinese provinces have also seen rapid innovation in local e-commerce platforms to establish efficient logistics mechanisms, and no physical contact delivery models for hygiene purposes (e.g. Henan Province’s practice, MOFCOM reports).
We will continue to closely monitor the COVID-19 situation regarding agri-food MSMEs’ business capacities and their trade with China.
To access further information and online courses on international organisations’ analysis of COVID 19 and relevant policy suggestions for MSME support, China’s supporting policies to pandemic influenced business, and trading with China during and post to the pandemic, please see the following links for reference:
|International Organisations’ Analysis and Policy Suggestions on COVID 19||China’s Support Policies for MSMEs||Trading with China during and after COVID 19|
|ITC-ILO online course: Business Continuity during COVID-19||China Daily on Measures to support SMEs amid COVID 19||Produce Report on China’s fruit market|
|World Economic Forum Portal summarising related publications and data around COVID 19||China Briefing on Regional Measures to support SMEs amid COVID 19||CEIBS analysis portal for COVID 19 Impacts and changes in China|
|OECD on measures to tackling COVID 19 with Global Efforts||CEIBS on Chinese Government support business to navigate cash flow crunch|