When it's time to tell your grandkids a tale in 2071, tell them about the year 2021, when an awful tyranny known as the Chinese Communist Party was overthrown. I'm aware that the CCP still exists today. However, the strength that propelled it to prominence—the Chinese businesses—is now under jeopardy.
Over 4 million Chinese businesses go missing every year
According to SCMP, 4.37 million of China's smallest enterprises closed their doors permanently in the first 11 months of 2021. In contrast, just about 1.5 million new businesses opened at the same time.
For the first time in two decades, the number of micro and small businesses that have closed their doors has surpassed the number of such businesses that have registered.
The "backbone" of Chinese private enterprise is shattered
When one considers China, it is natural to believe that it is a country dominated by large corporations. I'm referring to tech behemoths like Alibaba, Tencent, and Huawei, which rose to prominence swiftly throughout the world.
China, on the other hand, is a land of micro and tiny businesses. Tiny-scale businesses are considered the "backbone" of China's private sector, with approximately 40 million micro and small businesses. Last year, around one-tenth of these businesses went out of business.
Small-scale businesses play a crucial role in China's vital industries. For example, China's steel sector is extremely decentralized, with hundreds of individual steelmakers scattered across the country. The majority of the strategic metal's largest producers are state-owned.
Because the bigger steelmakers account for less than half of China's steel output, it is the smaller private companies that make China's steel sector so vast—so large that China now produces more than half of the world's steel.
These tiny businesses, which are strewn over China's industrial hotspots, provide half of the country's tax income, 60% of GDP, and 80% of urban employment. So, if the micro and small business sector continues to die, the CCP is doomed.
Why are China's tiny private businesses disappearing?
Beijing refers to "threefold pressures," which include decreasing demand, supply shocks, and weakened expectations. And, at the end of the day, it all boils back to Beijing's mismanagement.
Xi Jinping has been drumming his “common prosperity” agenda for quite some time now.
According to Xi, he wants to close the wealth gap between the affluent and the poor. Enterprises interpret it as a warning that Beijing may nationalize private businesses in order to make the wealthy poorer and close the income gap. This is precisely what a Maoist Jinping wants, and I'm not joking. As a result, many enterprises have simply opted to deregister, liquefy their riches, and hide it from the CCP in some way.
Then there are the unfavorable business circumstances in China. Last year, China's severe power rationing forced several food processing plants and significant metals manufacturers to shut down operations.
Why would a manufacturing company want to expend expenses if it can't produce and profit?
And the situation for Chinese officials is far worse. Local companies are being browbeaten by false taxes, harsh fines, and extortion methods. The desire to do business in China is being destroyed by such regulatory and physical crackdowns.
Finally, China has failed to maintain its infrastructure. Several times in 2021, Chinese ports were clogged owing to local Coronavirus epidemics that were outside Beijing's control. The recent lockdown in Xi'an and an increase in COVID instances in Shaanxi province, China's main coal-producing area, are expected to cause greater problems for China's smaller businesses.
Big businesses like Alibaba and Tencent, for example, can weather Xi Jinping's mismanagement and vindictiveness. However, it is the millions of smaller businesses that are suffering the most, and their demise might spell the end of CCP.
