Hurdles seen

The external demand has been weakening, leaving a certain impact on private enterprises. Since the third quarter, exports have shown a downtrend. In September, China's exports in US dollar terms recorded an annual growth rate of 5.7 percent, a slowdown from August. The reasons, as we see, are the better performance in the same period of last year and the weakening global economy, which further weighed on external demand. With a recession likely to take place in major economies including the United States and the European Union, the external demand may face more pressure in the future. Also, the impact of monetary tightening on demand in major overseas economies will gradually weigh on export performance.

Private enterprises account for a large proportion in the overall export of domestic enterprises. According to Customs data, private enterprises have since 2019 surpassed foreign-invested enterprises to be the largest foreign trade entity in China. Since the first half of 2018, the proportion of private enterprises in China's total foreign trade value has increased from 39.7 percent to 49.6 percent in the first half of 2022. Such an increase reflects an improving private economy, but export declines will undoubtedly impact private enterprises as they are generally smaller in scale and more prone to risks.

Domestic pressures have also been on the rise. Since the beginning of this year, COVID-19 resurgences have been weighing on labor mobility between regions, which present challenges for private enterprises in finding labor and sustaining production. In addition, the services sector, which mainly consists of smaller private enterprises and is dominated largely by offline face-to-face scenarios, has been hit more severely.

Another segment facing pressure in the private sector is real estate. Property has been going through a tough time recently, not only because the sector, cyclically speaking, has been on a downward track after over 20 years of flourishing in China, but the aging population is making a reversal of the downtrend extremely difficult. And with the sector's high proportion of private enterprises, even greater pressure is being seen.

Under such a scenario, in the first eight months, market share of the top 50 private property enterprises fell by 13 percent year-on-year, with sales totaling 2.07 trillion yuan, a year-on-year decline of 58 percent. Although their financing costs in the first half were reduced, financing volume has continued to see negative growth, lagging behind that of centrally administered State-owned enterprises. Measures to further guarantee reasonable financing needs of private enterprises have been unveiled, though it will take some time for the implementation of these policies to take effect, and financing issues of private enterprises will still exist over the short term.