Ping An: China's SMEs Amid the Pandemic Are Facing Cash Flow Problems
HONG KONG and SHANGHAI, June 2, 2020 /PRNewswire/ -- Ping An Insurance (Group) Company of China, Ltd. (hereafter "Ping An" or the "Group", HKEx:2318; SSE:601318) announces that according to the SME Financing Report Series issued by Fudan-Ping An Research Institute for Macroeconomy (hereafter the "Institute") under Ping An Digital Economic Research Center and the School of Economics, Fudan University, China's micro, small and medium-sized enterprises amid the pandemic are facing cash flow problems and awaiting government aid.
This SME Financing Report Series focuses on the problems facing micro, small and medium-sized enterprises (MSMEs) amid the COVID-19 pandemic, and makes mid- to long-term recommendations based on predictions of macroeconomic trends.
MSMEs are crucial to China, contributing 60% of GDP and providing 80% of urban employment. Due to the pandemic, Chinese MSMEs are facing cash flow problems. Despite the introduction of a series of financial support policies, small and medium-sized banks are facing the dual challenges of rising ratios of non-performing loans and narrowing net interest margins when they extend credit to small and micro enterprises. However, the current predicament provides an opportunity for using big data, artificial intelligence (AI) and other technologies to solve the financing problems facing MSMEs.
China's GDP growth rate will hit a 40-year low in 2020 with an annual growth rate ranging from -1.5% to 3%.
Under the coronavirus pandemic, more than 100 nations around the world have taken quarantine, social distancing, and lockdown measures, which have a huge impact on the global economy. Considering the pre-pandemic economic growth slowdown and the impact of COVID-19, China's GDP is expected to grow at a rate of -1.5% to 3% for 2020, a 40-year low. In the long run, with the pandemic and deglobalization, global trade may give way to intraregional trade, multilateral trade to bilateral trade, and international trade to domestic trade. China's current and future macroeconomic performance will be dragged down mainly by global supply chain shocks and shrinking external demand.
The pandemic has dealt a heavy blow to MSMEs; education, accommodation and catering, cultural, sports and entertainment, and manufacturing industries are the worst affected.
The first-quarter revenue of MSMEs was less than 50% of the same period last year. The report estimates that the revenue of MSMEs in the first quarter decreased by about RMB6.7 trillion (about 6.76% of the annual GDP of 2019). Turnover of MSMEs in the education industry was only 10.2% in February and 11.8% in March of the same periods in 2019. For MSMEs in the accommodation and catering industries, the turnover was only 12.8% in February and 23.5% in March of the same periods last year. Turnover of MSMEs in the cultural, sports and entertainment industry in February and March this year was less than 30% of the same period last year. For manufacturing MSMEs, turnover in February and March was less than 40% of the same period last year.
Small and medium-sized banks face challenges when extending credit to small and micro enterprises.
More than 70% of small and micro enterprises get their loans from small and medium-sized banks. Whether the central government's financial support policies can be fully implemented depends on the lending capacity of small and medium-sized banks. At present, rising non-performing loan ratios and narrowing net interest margins have restricted small and medium-sized banks from extending credit to small and micro enterprises.
China's policy priority shifted when responding to COVID-19, but MSMEs have always been the top-of-mind concern.
The Institute adopted natural language processing (NLP) to run a semantic analysis of more than 100 speeches delivered by the Chinese leadership and government work arrangements. It finds the work of the Chinese government can be split into three stages: (1) Ensuring supply of medical devices and necessities are not disrupted when battling with the disease (before Feb. 19); (2) Lifting lockdown measures by risk levels (from Feb. 19 to March 17); (3) Coping with the global recession (after March 18). A series of policies have been announced to help MSMEs cope with the shock of COVID-19, namely: financial support, tax and fee cuts, encouraging employment, and helping boost productivity. More than RMB6.03 trillion has been earmarked for financial support and tax and fee cut policies.
National and provincial fiscal revenues are facing severe pressure.
Fiscal revenue has declined at both national and provincial levels. A growing gap between fiscal revenue and expenditure will be inevitable in 2020. As a result, space for fiscal policies such as tax reduction and fee reduction is relatively limited. In response, it is necessary for monetary policies to provide necessary liquidity for MSMEs. Fiscal policy needs to be more focused on improving quality and efficiency, by cutting unnecessary expenditures and promoting budget performance management. On the other hand, it is also imperative to alleviate grassroots fiscal difficulties through debt issuance, for which the report suggests a lift of the deficit rate to 4%, the issuance of RMB2 trillion of special Treasury debt and an increase in the issuance limit of special bonds to RMB4 trillion this year.
Using technologies to solve the financing problems facing MSMEs.
According to the report, commercial banks still have plenty of room to lend money to small and micro enterprises using central bank's low-cost funds, and more than 70% of loans for MSMEs come from small and medium banks. Helping small and medium-sized banks to manage the loan credit risk of MSMEs is the key to solve the financing problem of MSMEs. The report suggests banks utilize technologies including big data and AI to effectively regulate the use of loan funds. Local governments should grasp the benefits of digitalization, reducing unnecessary expenditure, improving budget management, and enhancing the efficacy of fiscal policies.
Download the full report: China's SMEs Amid the Pandemic
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About Ping An Group
Ping An Insurance (Group) Company of China, Ltd. ("Ping An") is a world-leading technology-powered retail financial services group. With over 204 million retail customers and 534 million Internet users, Ping An is one of the largest financial services companies in the world.
Ping An has two over-arching strategies, "pan financial assets" and "pan health care", which focus on the provision of financial and healthcare services through our integrated financial services platform and our five ecosystems of financial services, health care, auto services, real estate services and smart city services. Our "finance + technology" and "finance + ecosystem" strategies aim to provide customers and internet users with innovative and simple products and services using technology. As China's first joint stock insurance company, Ping An Group is committed to upholding the highest standards of corporate reporting and corporate governance. The Company is listed on the stock exchanges in Hong Kong and Shanghai.
In 2020, Ping An ranked 7th in the Forbes Global 2000 list. In 2019, Ping An ranked 29th on the Fortune Global 500 list. Ping An also ranked 40th in the 2019 WPP Millward Brown BrandZTM Top 100 Most Valuable Global Brands list. For more information, please visit www.pingan.cn.
About Ping An Digital Economic Research Center
Ping An Digital Economic Research Center utilizes more than 50 TB high frequency data points, more than 30 years of historical data and more than 1.5 billion data points to drive research on the "AI + Macro Forecast" and provide insights and methods towards precise macroeconomic trends.
About Fudan-Ping An Research Institute for Macroeconomy
The Fudan-Ping An Research Institute for Macroeconomy is an interdisciplinary platform for macroeconomics and finance, jointly established by Fudan University and Ping An Technology. The Institute has created a new model for sharing resources between first-class universities and first-class enterprises and complementing each other, and is committed to introducing the most cutting-edge technologies, such as artificial intelligence and big data, into research and applications in the macroeconomic field to build a world-leading think tank and research platform.