Editorial | Welcome lifeline for China’s SMEs in cash crisis

China’s leadership is encouraging the private sector to play a bigger role in the economy. The sector is key to boosting growth, given that it contributes 60 per cent of national output and more than 80 per cent of urban employment.

However, as well as battling low consumer confidence and weak domestic consumption, it faces obstacles to payment of commercial debt, including from state-owned firms and local governments.

This has become such a crippling problem for small and medium-sized enterprises that not only has Beijing passed legislation to address it, but also Premier Li Qiang signed a State Council decree in late March that regulates and guarantees payments owed to SMEs.

This is a concrete step towards wiping out long-standing arrears and revitalising a sector that forms the backbone of China’s economy.

The decree, unveiled in October and set to take effect from June 1, safeguards payments to SMEs and requires large enterprises to pay them within 60 days. There is also a complaints platform, and harsher punishments for non-compliance.

Talk of the private sector tends to conjure up big hi-tech names that dominate headlines and markets. SMEs may output more and employ more people, but they do not command the same bargaining power or focus of policymakers and analysts.