Mom-and-pop stores and sole proprietorships just got a new deal in China

Mom-and-pop stores and sole proprietorships just got a new deal in China

In September 1979, the government started registering sole proprietorships or household enterprises — known as “individual industrial and commercial households” (个体工商户 gètǐ gōngshānghù). Some reports say the first household enterprise license was actually issued in 1980 by the city of Wenzhou in Zhejiang Province to a woman who used it to legally sell household items at a street stall.

As cities and local governments across China followed suit and began licensing sole proprietorships, the pent-up energy of millions of entrepreneurs across the country was unleashed: They opened mom-and-pop stores, small restaurants, home-based tailoring services, bicycle repair stalls, and tiny shops that sold all types of things. Household enterprise became a key driver of China’s growth.

From the 15th Party Congress in September 1997, when the private economy was enshrined as an important part of China’s socialist market economy, the number of household enterprises started to expand rapidly. By 2012, there were more than 40 million household enterprises. Since then, their number has increased at an average annual growth rate of 10.9%: By 2017, there were around 65 million, and by 2021, there were more than 100 million. In the first eight months of 2022, 13.591 million household enterprises were newly registered.

The nature of household enterprises is changing: Of the 111 million household enterprises today, a total of 32.22 million, or 29.4%, are engaged in the “four new industries” of culture; sport and entertainment; science, research, and technical services; and software and information technology.

COVID and excessive bureaucracy

On Tuesday, the State Council announced new regulations for the promotion of household enterprises, which are set to take effect on November 1. According to the State Administration for Market Regulation, as of September 2022, there are around 111 million registered household enterprises in China, accounting for two-thirds of all companies, and they employ nearly 300 million people. Variously described as the “capillaries” and the “nerve endings” of China’s economy, household enterprises have also been the most fragile and exposed to the impact of the COVID pandemic and COVID zero.

The new regulations are specifically aimed at optimizing government support and services for household enterprises, and at addressing the difficulties they are currently facing. Some of these difficulties actually stem from government regulation: A State Council inspection team uncovered several cases of improper punishment meted out to household enterprises, including one enterprise that sold 5 kilograms of celery (which exceeded the standard measurement) for 20 yuan and was then fined 66,000 yuan ($9,148). Such fines are crippling for household enterprises, as the vast majority of them are very small indeed: A survey by the State Administration for Market Regulation this year found that nearly 80% of such household enterprises have an average monthly revenue of less than 10,000 yuan ($1,386).

Can household enterprises save the economy?

Aside from addressing the arbitrary nature of government regulation, the new regulations are intended as a comprehensive development package for household enterprises by offering tax breaks and financial support, beefing up government services, and helping micro-entrepreneurs with intellectual property protection and social security. In total, the new regulations contain 39 articles in the full text, including 19 articles of specific support policies that, among other things, will:

  • Simplify and standardize the system for business registration and submitting annual reports;
  • Mandate labor associations to provide support to household enterprises;
  • Classify household enterprises so that customized support policies can be implemented;
  • Require local governments to provide low-cost business premises to household enterprises;
  • Offer financial and tax support, as well as social security and employment benefits;
  • Help household enterprises to expand their digital presence (according to the State Administration for Market Regulation, 70.3% of household enterprises have no online business);
  • Encourage the use of intellectual property rights among household enterprises;
  • Require local governments to specifically consider the needs of household enterprises; and
  • Stipulate government relief measures for household enterprises in case of natural disasters and public health incidents.

According to Lǐ Zhìqǐ 李志起, the vice chairperson of the Beijing Federation of Industry and Commerce, the new regulations are intended as “tinder and flame” for the development of household enterprises, the composition of which is starting to undergo major changes. According to Li, household enterprises are no longer simply predominantly operating in the traditional service industry such as catering and retail, but are now also facilitating new entrepreneurship in areas such as live broadcast ecommerce, cultural events, and other businesses run by young people.

If the new regulations are implemented, Li believes, “household enterprises will experience a new springtime of development, with the emergence of many new types of business that will relieve the pressure of unemployment and promote entrepreneurship and innovation.”

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