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Riding Out the COVID-19 Storm: How Government Policies Affect SMEs in China

Author

Listed:
  • Joy Chen

    (Cheung Kong Graduate School of Business)

  • Zijun Cheng

    (National School of Development, Peking University)

  • Robin Kaiji Gong

    (Department of Economics, Hong Kong University of Science and Technology)

  • Jinlin Li

    (National School of Development, Peking University and Harvard Kennedy School)

Abstract

Based on a nationally representative survey on SMEs in China, we study the impact of government policy interventions on SMEs during the COVID-19 pandemic. Our findings are three-fold. First, regional and local lock-down policies decrease SMEs' incidence of reopening and delay their expected reopening in the near future, likely by reducing consumer demand. Second, stabilization policies in the form of payment deferrals and exemptions significantly improve SMEs' cash flows and further stimulate their operational recovery. This effect is more pronounced for firms with larger shares of high-skilled employees. Last, financial support policies do not appear to be effective in alleviating SMEs' cash constraints or encouraging the reopening of small businesses, potentially due to difficulties in accessing policy-oriented loans and misallocation of credit. Our findings shed new light on the policy debates on supporting SMEs during the COVID-19 pandemic.

Suggested Citation

  • Joy Chen & Zijun Cheng & Robin Kaiji Gong & Jinlin Li, 2020. "Riding Out the COVID-19 Storm: How Government Policies Affect SMEs in China," HKUST CEP Working Papers Series 202006, HKUST Center for Economic Policy.
    • Handle: RePEc:hke:wpaper:wp2020-06
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    References listed on IDEAS

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    Cited by:

    1. Wei Cui & Jeffrey Hicks & Max Norton, 2022. "How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1321-1347, October.
    2. Onjewu, Adah-Kole Emmanuel & Olan, Femi & Nyuur, Richard Benon-be-isan & Paul, Salima & Nguyen, Ha Thanh Truc, 2023. "The effect of government support on Bureaucracy, COVID-19 resilience and export intensity: Evidence from North Africa," Journal of Business Research, Elsevier, vol. 156(C).
    3. Xavier Cirera & Marcio Cruz & Elwyn Davies & Arti Grover & Leonardo Iacovone & Jose Ernesto Lopez Cordova & Denis Medvedev & Franklin Okechukwu Maduko & Gaurav Nayyar & Santiago Reyes Ortega & Jesica , 2021. "Policies to Support Businesses through the COVID-19 Shock: A Firm Level Perspective [Economic Uncertainty before and during the COVID-19 Pandemic]," The World Bank Research Observer, World Bank, vol. 36(1), pages 41-66.

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    More about this item

    Keywords

    COVID-19; Policy; China; SME;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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