The COVID-19 outbreak has swept the world. The prolonged shutdown has posed a major threat to the development of a large number of MSMEs in China. Research on MSMEs shows that 29.58% of companies will see a decline in revenue of more than 50% in 2020, 58.05% by more than 20%, and 85.01% will not be able to sustain their survival for 3 months. In general, the impact of the epidemic on MSMEs is on four main areas: 1) losses and capital tied up in merchandise inventory backlogs, expiry and spoilage; 2) fixed cost expenses such as labour and rent; 3) unexpected changes in demand to operational activities; and 4) obstacles in resumption of work and policies.
To promote the orderly resumption of work and production by MSMEs, effectively reduce the burden on enterprises and help them tide over the difficult times, the Ministry of Human Resources and Social insurance has implemented the Temporary Reduction and Exemption of Social Insurance Premiums Payable by Enterprises: as of February 2020, exempt micro, small and medium-sized enterprises from employers' contributions to the premiums of three social insurances for not more than five months; reduce by half the contributions payable by large enterprises and other participating employers to the premiums of three social insurances for not more than three months; enterprises affected by the pandemic and experiencing serious difficulties in production and operation and unable to pay social insurance contributions in full may apply for a deferment of social insurance contributions for a period not exceeding six months. The unprecedented reduction in social insurance contributions will help to reduce the rigid costs of MSMEs, improve the cash flow of companies and increase their probability of survival, which is timely support for MSMEs through difficult times.
However, the effectiveness of the policy of temporary reduction and exemption of social insurance is also affected by the degree of pandemic control, the speed of resumption of work and production, and the government's efforts to restore social production. It is the most important prerequisite for MSMEs to benefit from social insurance reduction. It follows that even if social insurance contributions are partially reduced or postponed, MSMEs in severe production difficulties may still not be able to benefit from these policies. In response to the above, we present the following policy recommendations:
Extension of the social insurance payment reduction for MSMEs to one year
Extending the reduction for MSMEs to one year on the basis of a scientific assessment. It has been estimated that a five-month reduction in MSMEs' three social insurance premiums (pension, unemployment and workplace injury) is equivalent to a 30% annual reduction in the three national insurance collections. The national surplus of the three social insurance schemes reached $6.85 trillion in 2019, which can successfully support a year of pension payments and related expenses. Together with the implementation of the Central Adjustment System for Basic Pension Funds from 2018, it is theoretically feasible to appropriately extend the duration of the social insurance premium reduction for MSMEs. It is true that, against the backdrop of greater pressure on the balance of the Social Insurance Fund, the significant reductions are even worse for its income. However, from a dynamic perspective, if there is a wave of bankruptcies of MSMEs, the employment problem is bound to become more acute. Falling employment means fewer contributors, and the balance of the social insurance fund may be more threatened in the future. It is therefore an important choice for the moment to "release the water and feed the fish".
Introduction of policies related to the reduction of social insurance contribution rates for MSMEs
The length of the national social insurance premium reduction policy is 5 months. There are still many cities across China that still have not fully resumed work and production, and the reduction policy has been in place for nearly five months. This has led to MSMEs remaining more concerned about the burden of social insurance contributions after the five-month reduction period, and this concern and expectation is not conducive to MSMEs actively resuming recruitment and promoting employment after the pandemic. In view of this, it is recommended that a policy of continued reduction in social insurance contribution rates for MSMEs be introduced to give them peace of mind, in addition to a short-term policy of social insurance fee reductions.
Active use of unemployment insurance benefits to increase employment stabilisation support and subsidies for enterprises
General relaxation of the criteria for MSMEs unemployment insurance stabilisation rebate policy during pandemic prevention and control. Increase support for vocational training subsidies and actively promote online vocational skills training. MSMEs who conduct offline or online training during the downtime and recovery period during the pandemic prevention and control period are also covered by the subsidy as required. Support the development of temporary public service positions in areas with serious pandemics. Application of the unemployment insurance fund for the payment of unemployment benefits to unemployed personnel.
Introducing a housing provident fund reduction policy
The current three social insurance fee reductions introduced by the State Council do not include the housing provident fund. In the context of the pandemic, the introduction of a 5 month to 1 year housing provident fund reduction for MSMEs is also a viable option to help work resumption, production and to ease the burden on MSMEs. The Housing Provident Fund system was introduced from Singapore in the early 1990s, and has played an important historical role in the transformation of our housing system. The current marketisation of our real estate means that this reform is largely complete. Apart from increasing employment costs for companies and exacerbating distribution conflicts, the positive aspects of the housing provident fund have long been less prominent than they were then. Few countries currently have such a system in place, and its cancellation would directly reduce costs for companies and employees by 12%.