China’s smallest firms failing at historic pace as 4.37 million close up shop and registrations plummet

Ex-finance minister has said official economic indicators failed to paint accurate picture of economy, and publicly available data did not show how many firms vanished

Only 1.32 million new micro and small firms opened in China during the first 11 months of this year, compared with 6.13 million last year

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In China’s industrial sector, “small” firms are those that employ fewer than 300 people and earn less than 20 million yuan a year. Photo: Xinhua

Published: 8:30pm, 30 Dec 2021Updated: 1:14pm, 7 Jan 2022

Corrected [12:58pm, 7 Jan, 2022]

[12:58pm, 7 Jan, 2022]
The name of the public registry tracking firm has been removed as the data for this story was provided via a third-party. This does not impact the accuracy of the data.

About 4.37 million of China’s smallest businesses permanently shut their doors in the first 11 months of the year – more than three times the number of new ones that opened during the same time, according to data obtained by the Post.

Figures from a public registry tracking firm also show that, for the first time in two decades, the rate of deregistration among micro and small businesses surpassed the number of those newly registered in China.

The data is particularly relevant given that Beijing considers the nation’s more than 40 million micro and small firms the “backbone” of China’s private sector, underpinning the national economy. Their struggles are a reflection of broader economic headwinds that analysts say could see gross domestic product (GDP) drop below 4 per cent in the fourth quarter of this year.

During the annual central economic work conference earlier this month, Beijing warned that growth was facing “threefold pressure” of contracting demand, supply shocks and weakening expectations.

It is likely that the number of deregistered companies this year will also exceed that of last year – 4.45 million – which was already a historical high at almost double the rate in 2019 and about 10 times that of 2018, the data showed.

Each month this year, an average of 397,435 micro and small companies closed in China, surpassing the monthly average of 370,782 last year, when the country was hit hard by the initial outbreaks of Covid-19 that led to widespread lockdowns and the nation’s first quarterly GDP contraction since the end of the Cultural Revolution in 1976.

Nonetheless, 2020 still saw more micro and small firms opening – 6.13 million – than closing, even though that figure marked a sharp decline after several years of growth. And the decline was exacerbated in 2021, as only 1.32 million new micro and small firms opened in the first 11 months of this year.

In their role as the nation’s economic backbone, smaller enterprises account for half of China’s tax revenue, 60 per cent of its GDP and 80 per cent of urban employment.