The Coronavirus Disease (COVID 19) outbreak has become a pandemic that affects global trade patterns and connectivity. United Nations Conference on Trade and Development (UNCTAD) 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.
The emerging Asia also faces immense pressure on the economic conditions. This has partially been resulted from the trade restrictions between the region and their biggest trade partners, USA and China (OECD).
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.
Asian countries are discovered to have the fiscal leeway and the banking sectors are “well-capitalised”; however, MSMEs, which take up 90% of the region’s businesses, relying heavily on the monetary support the banks can offer during this special period. From March onwards, border controls are more severely imposed in Emerging Asia which affected the global value chain, and in turn, lead to particular hampering for the operation of MSMEs specialising on exports (OECD).
China’s support policies and easing measures for especially domestic and also international MSMEs are provided for the reference of MSMEs which export products to China and policy makers in other countries.
China’s measures to support domestic MSMEs and foreign MSMEs operating in China
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. The State Council predicts that, Chinese economy will rebound in the second half of the year. China has imposed both demand and supply side support measures, following three key principles of “maintaining steady consumption and guaranteeing employment”, “combine fiscal and monetary policies”, and “utilising China’s finance base and facilitate effective, prompt and targeted support for MSMEs”.
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 actors, 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 Chinese 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 (MIIT), 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. In addition, via MIIT’s database, businesses that encounter difficulties to resume operation are tracked down, and an One-to-One support mechanism is established. Experts share suggestions to the businesses via video calls and group chats on social networks. MIIT also research into the global pandemic situation with regard to the international value chains to prepare the domestic businesses.
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; MSMEs 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%.
Extending easing taxation policies for SMEs: to encourage banks and medium/small sized financial entities lending money to the SMEs, a policy in which defines that no taxation will be charged on the interests obtained by the financial entities by lending to the SMEs came out in 2017. The policy was supposed to be only functional until 31 December 2019, however, due to the Covid 19 Situation, the policy was extended to be functional by 31 December 2023 (State Administration of Taxation’s summary on all policies of taxation supporting the control of Covid 19 situation and rebound of Economy).
Eased Utility Bill Payment Mechanism: MIIT announces that, for businesses that are not in the energy-intensive industries, 95% of the original price for per unit electricity used will be charged from February to June 2020. Off-season pricing of natural gas, water and electricity will be offered in advance. For MSMEs which cannot pay for their utilities during the pandemic, no penalties will be charged.
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 2020. A low interest rate of 2.5% is set for MSME’s loans. 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. In addition to the measures set out right after the outbreak of virus, on 1 June 2020, the guidance on strengthening financial measures to support SMEs was published, commercial banks are encouraged to switch the focus of their lending services from real estate, big scaled-enterprises to MSMEs. Five state-owned commercial banks have seen their rate of loan granted to MSMEs has risen by 40% since the outbreak. Provincial governments with sufficient capital are also encouraged to set up “ponds of capital” for risk compensation purposes when MSMEs face challenges incurred by COVID 19.
Establish a data platform on agri-food market indicators during the pandemic: The Ministry of Agriculture and Rural Affairs (MARA) has developed an online agricultural rolling data platform timely presenting the sales, product-specific total supply and pricing trends in China and every province. It also provides contact details of agri-food producers/retailers, and businesses selling agricultural equipment and materials to facilitate domestic trade.
Ensure the production of agri-food products during COVID 19: since late January, the State Council re-enforces its “Vegetable Basket” Programme with an accountability system especially holding municipal governments responsible to ensure agricultural production and strict epidemic prevention in agricultural endeavours.
Guarantee the quality and security of food supplies during COVID 19: MARA has conducted quarterly monitoring of food security. MARA’s June 2020 data presents that for the first quarter of 2020, across all 31 provinces and autonomous regions in China, the qualified rate of all agri-food products has reached 97.9%; vegetables and fruits supply, meat products and seafood products correspondingly have 97.7%, 98.9% and 96.5% of them qualified.
Facilitate trainings on E-commerce especially for rural producers: MARA’s project “Internet + helping rural producers sell products to the cities” for the Rural Revitalisation initiative was first introduced last year in December. With E-commerce being provenly an effective business modality in China, ensuring business activities, empowering business resilience, the project is being promoted to capacitate rural producers during the special period. In the pilot phase, the project has been implemented in 100 counties which demonstrate particular production specialty or are counted as underprivileged. By the end of 2021, the project will be facilitated in all rural areas across China on successful piloting results.
Supportive customs policies for global traders: The General Administration of Customs, P.R. China (GACC) announced on 13 March 2020 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. In addition, on 30 June 2020, GACC has published an instruction note on using the GACC mobile application/Wechat function for product clearance information updates. The application will also send out GACC’s newest policies regarding the custom procedures for exporters to China.
Relocate fruit and meat sellers to temporary stalls to guarantee food supply: as new cases of COVID 19 were discovered in Beijing, tracing to the Xin Fa Di wholesale market, the largest wholesale market in Beijing and the Northern China, the market started to go on a complete lockdown on 13 June. All vendors have undergone the throat swab test for COVID 19. To guarantee the supply of fresh produce, Xin Fa Di’s produce supplies are relocated to several open areas and the Beijing government does not charge business operation fees to reduce the burden of the traders. Markets in other parts of China also have taken preventative measures and strengthened their health check of vendors (Produce Report, 2020).
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 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.
Both as a demand and supply side measure to develop trade resilience during COVID 19, in June 2020, a master plan for the Hainan Free Trade Port was released. The Chinese State Council expect to develop Hainan as the largest economic zone, and to finish the establishment of the Hainan Free Trade Port in 2025 and bring it to a higher level in 2035.
To help Chinese domestic and foreign business leverage full capacity of the policies, China’s central and local governments easing 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.
OECD summarises in their report on SMEs’ policy responses that, countries in general have followed the below sequential steps when they provide supporting policies for the domestic SMEs:
“1. Health measures, and information for SMEs on how to adhere to them;
2. Measures to address liquidity by deferring payments;
3. Measures to supply extra and more easily available credit to strengthen SME resilience;
4. Measures to avoid, or mitigate the consequences of, unorganised lay-offs by extending possibilities for temporary redundancies and wage subsidies;
5. Structural policies.”
OECD suggests governments, to facilitate support for SMEs not only along the stream to compensate their loss of revenues, however, also to capacitate them on sustainable terms, so to expand their business potentials. At the same time, some countries identify cases where policies are late in implementation. Therefore, an effective Monitoring and Evaluation system is crucial for the support to be de facto provided.
By late May 2020, according to the Ministry of Industry and Information Technology, around 91% of Chinese MSMEs have resumed their business activities and nearly all large enterprises and projects resumed their business operations. China’s industrial output rose by 4.4% in May 2020 compared to that of 2019. Indicators aside, however, the different between the supply and demand has been continuing being expanded while the economic recovery strikes to take place. Chinese authorities now focus their attention to help the overall demand level rebound, although this is foreseen to take more time and efforts as policy assistance has more direct influence on the supply capacity in a market.
COVID-19’s impacts on (Agricultural) Trade with China
The pandemic situation has an eminent impact on China, the largest regional importer of fruits and meat products in Asia. Responsive policies and consumer behaviours have significantly impacted on agricultural exports from Mongolia, Cambodia, Laos and Vietnam. According to data shared by China Chamber of Commerce of Foodstuffs and Native Produce (CFNA), China’s agri-food import volume is around 24.7 billion USD by the end of March 2020, generating a proportionate rise of 5.1% from last year. The rate of increase in import has been slower compared to last year’s. However, the import of meat has been increased proportionately by 69% in volume.As for the trade of fruits, China has imported more than 1.02 million tons of fruit with a total value of 2.17 billion USD, indicating an 11% decline in volume and 8% rise in value compared with the same period of 2019. By import value from January to February, the top nine fruit categories were: fresh cherries (1.17 billion USD, +32% YOY), bananas (150 million USD, −14% YOY), fresh longans (128 million USD, −19% YOY), fresh grapes (97 million USD, −27% YOY), fresh dragon fruit (94 million USD, +66% YOY), fresh cranberries and blueberries (81 million USD, +21% YOY), fresh durians (66 million USD, −10% YOY), fresh peaches and nectarines (58 million USD, +30% YOY) and other fruits (48 million USD, +63% YOY). These nine main categories accounted for 87% of the total import value (Produce Report).
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 for commercial flights (including international flights from Wuhan). Due to the record number of charters planned to China, the air freight capacity is now capable of meeting the market demand. PVG and CAN airports are in bad congestion.|
|Sea Freight||All major ports and terminals in China are open. Due to the severe repercussions of the COVID-19 outbreak globally, vessel schedules are strongly impacted as significant blank sailing was experimented in May. Spacing issues are prevalent. Barging services are back to normal.|
|Rail||Railway services have come back to normal.|
|Road||Inland trucking service is back to normal.|
|Logistics||Warehouses are fully operational, back to normal.|
Table Adapted from: Bansard International’s Field Research on 21 May 2020
Since Beijing discovers new cases of Covid 19 in June 2020. Meat products and seafood products are undergoing especially strict inspection at Chinese Customs. GACC requires that exporters need to sign certification statements to guarantee that their products are free of SARS-CoV-2. All sample imported food products inspected from 11 to 17 June were tested negative of the virus. Imported fruits have all undergone random inspection, according to a source at Shanghai’s Huizhan Fruit and Vegetable Market, the average inspection time for one batch of fruits is 6 hours. However, maximumly it takes 1-2 days of inspection time. To prevent direct contacts with personnel from the Xin Fa Di Market, logistic companies also proactively curtailed shipments to Beijing, Shanghai and Guangzhou markets also face challenges outsourcing their products.
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.
5. The spring ploughing period has to an extent been influenced by the COVID 19 outbreak. Quarantine policies especially at the beginning of the epidemic have disrupted the production of agricultural goods. In addition, China’s National Statistics Bureau reports that swine flu in 2019 has led to the smallest swine population in China in 25 years. Therefore, at the beginning of 2020, the project foresees that throughout the year, China might need to rely significantly on foreign supplies of agricultural products.
6. China’s provides equal support policies for domestic businesses and foreign business operating in China. Foreign businesses are supported on one-to-one basis when they face difficulties to resume operation. Technical wise, MOFCOM supports foreign business in China which are facing difficulties by setting up online marketing, communication and contracting pathways. Financial wise, MOFCOM aims to ease their daily operation via the reduction of tax, low interest rates for loans and eased utility bill payment mechanisms.
7. Research found out that, consumers in China, likewise in other countries, have gone through a consumption pattern of bulk buying to rising bulk purchase, together with consumer preference shift to purchasing products that are reputationally beneficial for people’s immune systems, such as oranges and lemons.
8. The wholesale prices have been on the fall in China since the pandemic started. According to data released by MARA, five domestic fruits have seen a fallen price of 11.7% compared to that of 2019. This is because of the stagnated consumer demand. Data from the National Bureau of Statistics reports that, in 2020, there was a 6.8% fall in the first quarter GDP in China compared to the year before, marking a first quarterly shrinkage of the China’s economy since 1992. Imported fruits, along with the trend for Chinese customers to spend less, is much unlikely a must-have item in China. Young people in China, which have been the primary customers of imported fruits, have finally welcomed the time where the pricing of their desired imported fruits significantly drop, yet they face pressures to have reduced income in the special pandemic period (Produce Report). In addition, Covid 19 led to a fall of value in the RMB, this further curtails Chinese consumers’ buying power, imposing direct influence on import volume (Xinhua Net). Overall, the international trade by value has fallen by 9.6% while net export by value fell by 15.9% and import by value fell by 2.4% till February 2020 compared to that of the year before (Xinhua Net)
In addition to the agricultural trade, the most influenced Chinese imports encompassing products which required factory processing, and capital goods such as electrical machinery. Overviewing both domestic and international commercial activities, China’s most influenced sectors by COVID-19 include agriculture, logistics, textiles and the businesses producing raw materials (World Economic Forum, May 2020).
Long term impacts for trade with China:
In the long run, the Ministry of Agriculture and Rural Affairs (MARA) expects that relevant ministries and agencies like the General Administration of Customs (GACC) as well as Chinese consumers are likely to pay more attention on food safety and health during and after COVID 19. On 29 May, MARA sets out its “Salient Sword” Action Plan for Food Security in China. The “Salient Sword” Action Plan aims for the food market and producers in China provide the “security from the tip of tongue” to consumers. The Action Plan along the chronological line is of four stages, with provinces and autonomous regions first make their customised plans for supervisory systems and food security measures across the production, processing and retailing of the local food products. Then two implementation stages will consecutively be carried out with an emphasis on strengthening the supervisory systems to guarantee secure fruits and vegetables, meat products and seafood products are provided in the domestic market and for export purposes. The secure use of additives is one of the focuses in the action plan, via the facilitation of qualified sanitary and phytosanitary measures on products produced, offered in the market, imported and exported. In November and December 2020, MARA will review the implementation of the Action Plan and to set out further measures for sustainably guaranteeing food security produced and consumed in China.
More advanced monitoring measures for customs procedures and retailing are being mainstreamed into the long term practices: China’s orientation to connect its many sectors via big data and to realise the automation of the entire clearance process is also indicated in reforms of the GACC. During the required quarantine periods, e-commerce and e-finance have played essential roles to ease purchase power of Chinese consumers and more importantly 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). During the inception phase of the epidemic, people in China have reduced their consumption both online and offline. The consumers who only had 20% of their shopping done online, however, had an increase of their online shopping proportion due to their intentions to stay indoor or because of self-quarantine policies. Among these consumers, people who had less than 10% of their purchases made online saw a particular sharp rise. The rate of online shopping saw a steeper rise three months after the outbreak of the epidemic. Research foresees that, in the long term, online shopping as a trend will continue to rise within China. More and more consumers who were ‘light users’ of online shopping platforms are switching their habits from offline to online; the previously ‘heavy users’ of the platforms will be more receptive of newly developed shopping platforms and stimulate further innovation within the online shopping industry (iResearch, 2020). MOFCOM in May has established a monitoring and evaluative system of Chinese businesses providing services and products online to investigate into the needs of Chinese e-commerce industry, provide relevant infrastructure and prevent misconducts in the online trading environment.
On 25 February, the first inbound fruit train cargo, line 24502 of China has transported six refrigerated containers of 156 tons of dragon fruits from the city of Dong Dang in Vietnam to the port of Pingxiang, Guangxi, China. The opening of the rail service symbolises more timely transport and larger capacity of cargo between China and the ASEAN countries. This is also the first time that Vietnamese fruits entering the Chinese border via rail at Pingxiang. The cost of clearing customs via rail is more favourable for the Vietnamese exporters compared to the conventional road transport. In addition, the entire export processes, including customs clearance only takes around two days. Earlier in 2020, due to travel restrictions, the sales of Vietnam’s fruits to China had been highly influenced; the newly developed rail service indicates opportunities for Vietnam’s exports to China (Produce Report). From the fruit and meat producers or sellers’ point of view, online channels open doors to alternative arenas for their businesses to resume sales. However, only a small percentage of them are aware of how to use the channels and the utilisation of the channels remain low. There foresees a delay for domestic and international fruit producers and traders to get accustomed with the digital methods. In addition, China’s current cold chain still faces challenges to guarantee the freshness of the fruits/meat ordered via internet channels (Produce Report).
SRECA will continue to closely monitor the COVID-19 situation regarding impacts on agri-food MSMEs in the Cambodia, Lao PDR, Mongolia and Vietnam 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, country-specific logistics during the pandemic and trading with China during and post to COVID 19, please see the following links for reference: