Environmental Hazards

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The perceived impact of the Covid-19 epidemic:

evidence from a sample of 4807 SMEs in Sichuan
Province, China

Yi Lu , Jing Wu , Junlin Peng & Li Lu

To cite this article: Yi Lu , Jing Wu , Junlin Peng & Li Lu (2020) The perceived impact of
the Covid-19 epidemic: evidence from a sample of 4807 SMEs in Sichuan Province, China,
Environmental Hazards, 19:4, 323-340, DOI: 10.1080/17477891.2020.1763902

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ENVIRONMENTAL HAZARDS
2020, VOL. 19, NO. 4, 323–340
https://doi.org/10.1080/17477891.2020.1763902

The perceived impact of the Covid-19 epidemic: evidence

from a sample of 4807 SMEs in Sichuan Province, China
Yi Lua,b, Jing Wua, Junlin Pengc and Li Luc
a
Business School, Sichuan University, Chengdu, People’s Republic of China; bCentre for Integrated Research
on Risk and Resilience, Department of Geography, King’s College London, London, UK; cTourism School,
Sichuan University, Chengdu, People’s Republic of China

ABSTRACT ARTICLE HISTORY

The outbreak of the coronavirus disease (Covid-19) in January 2020 Received 16 April 2020
in Wuhan has had a significant impact on the Chinese economy, and Accepted 24 April 2020
especially on the small and medium-sized enterprises (SMEs). In
KEYWORDS
February 2020 an online questionnaire and follow-up interviews Covid-19 epidemic; perceived
were conducted on 4807 SMEs in Sichuan to assess the challenges impact; SMEs; China; Sichuan
associated with work resumption and the associated policy
requirements. It was found that most SMEs were unable to
resume work because of a shortage of epidemic mitigation
materials, the inability of employees to return to work, disrupted
supply chains, and reduced market demand. Many SMEs were also
facing cash flow risks as they had to continue to pay for various
fixed expenditures even though they had little or no revenue. As
these delays in work resumption have put unprecedented
pressures on the survival of many SMEs, recommendations
relevant to China and other affected countries regarding cash flow
relief, work resumption and consumption stimulation are given to
assist SME survival and economic recovery from the disaster
situation.

Introduction
The outbreak of Covid-19 in January, 2020, began in Wuhan and spread across the world.
On March11, the World Health Organization’s (WHO) Director General announced that
Covid-19 was a pandemic, which led to significant economic shutdowns around the
world in an effort to contain the virus. In addition to the loss of life, the Covid-19 pandemic
has also severely interrupted trade and supply chains, which in turn has had a significant
effect on the Chinese economy (McCloskey & Heymann, 2020). In China, where the Covid-
19 first appeared, many enterprises had to shut down for more than a month. However,
after permission was given to reopen, many small and medium-sized enterprises (SMEs)
have found it difficult to resume operation, which has resulted in further significant econ-
omic losses and put many in danger of closing permanently.
SMEs play major roles in most economies as they drive growth, provide employment
and open new markets. However, even though SMEs are major contributors to economic

CONTACT Li Lu lulirudy@scu.edu.cn Tourism School, Sichuan University, No. 24, South Section 1, Yihuan Road,
Chengdu, Sichuan, 610065, China
© 2020 Informa UK Limited, trading as Taylor & Francis Group
324 Y. LU ET AL.

growth, they are often the most vulnerable when there are major public crises. Runyan
(2006) concluded that small firms are most severely impacted in crises because of their
lower levels of preparedness, higher vulnerability, higher dependence on government
and local agencies, and the greater psychological and financial impact on the owners-
managers. However, as far as could be determined, there have been few previous
studies on the impact of disasters on SMEs and their post-disaster policy needs (Chang
& Falit-Baiamonte, 2002; Dahles & Susilowati, 2015; Tierney, 1997; Wedawatta & Ingirige,
2012), with most of these studies being focused on recovery after environmental
hazards such as earthquakes and floods; studies of the impact of SMEs after epidemics
are rare. The impacts of environmental hazards and epidemics are not the same, that is,
while environmental hazards can inflict physical damage to infrastructure systems, epi-
demics can have more devastating and prolonged impacts on the general population
and the economy (Santos et al., 2013).
Chinese SMEs have been a major driving force to China’s economic growth. As in a
market-oriented economy, Chinese SMEs are mostly private companies, and behave in
the same way and have the same barriers as the SMEs in other countries. The Covid-19
pandemic is having a significantly negative impact on SMEs in both developed and devel-
oping countries with the scope of the impact being far greater than any large-scale
environmental hazard. By obtaining a more comprehensive and detailed understanding
of the difficulties and demands faced by the SMEs at the early outbreak of the epidemic,
the government can develop specific supporting policies. To provide a timely reference for
other countries, this paper explored the perceived impact of the Covid-19 epidemic on
Chinese SMEs based on an online questionnaire that was completed by thousands of
SMEs in Sichuan Province, China.

Specificity of the Covid-19 epidemic in China

Compared to SARS, a deadly epidemic in China in 2003, Covid-19 is more infectious and
much more resilient as it took less than two months for there to be more confirmed
cases than SARS had reached over eight months, and took less than three months to
become a global pandemic. Therefore, the potential impact and especially the economic
impact of the Covid-19 epidemic is different from any other previous epidemics or emer-
gencies in China, as elsewhere.
First, the domestic economic situation is vastly different. As China now has an economy
8–9 times larger than during the 2003 SARS epidemic, and is even more connected to the
rest of the world, the total economic impact of the Covid-19 in China and across the world
could be significant. China’s economy is transitioning from high-speed growth to high-
quality development, its industrial structure is evolving from being resource and labour
intensive to capital and technology-intensive, and most importantly, consumption has
replaced investment as the main economic growth momentum. Therefore, while invest-
ments can continue or even increase, consumption is temporal, and therefore, may
struggle to recover after the epidemic (Joo et al., 2019). The timing of the outbreak
immediately before the Chinese New Year, which is usually accompanied by massive
population movements, added extra risk and urgency to the response (McCloskey &
Heymann, 2020). Though less fatal than SARS, Covid-19 was more widespread and more
contagious (Meo et al., 2020), with its impact being felt first on China’s tourism and
 ENVIRONMENTAL HAZARDS 325

consumption economy before the Spring Festival, after which it spilled over to hit other
supply chains in early February.
China had put unprecedented effort into combatting the spread of Covid-19 (Figure 1).
On January 23, 2020, Wuhan’s urban bus, subway, ferry and long-distance passenger trans-
portation was all suspended, and the departure channels of airport and railway stations
were also closed. A city with a population of over 10 million was absolutely locked
down. To curb the virus spread, the first-level public health emergency response, the
highest level, was activated across China shortly after the lockdown of Wuhan. China
mobilised the whole country to take the most comprehensive, stringent and thorough
control measures to save people’s lives, such as the prohibition of parties, gatherings
and meetings, lockdowns of cities, towns and villages, and shutdowns of factories, com-
panies and stores. The Spring Festival holiday was prolonged to keep the nation-wide
population migration at a minimum level and travellers from Wuhan and other epidemic
areas were required to report their travel records and to self-quarantine for two weeks to
prevent community transmission. Further, in many provinces, including Sichuan Province,
companies were not allowed to resume work until February 10. Given the stringent epi-
demic control measures, many factories and companies all over the country were in a
state of shutdown through most of February.
While these extreme measures contributed to slowing the spread of the coronavirus, at
the same time they threatened the survival of firms across all sectors and industries with
potentially devastating individual, societal, and economic outcomes, such as massive job
losses and social vulnerability. With the cities locked down, roads blocked and residential
communities sealed off, many people found they could not go back to the cities in which
they worked. While these stringent epidemic control measures inhibited the epidemic’s
spread, they also prevented employees from returning to work and interrupted the circu-
lation of raw materials and products. The impact of the epidemic on the economy may
further increase substantially if there are extended restrictions on movement and there-
fore trade and commerce within China (McCloskey & Heymann, 2020). Only time will
tell is this is to be the case.

Figure 1. Brief timeline of the Covid-19 epidemic in China (NB: 1.25 indicates January 25thetc).
326 Y. LU ET AL.

Impacts of disasters on SMEs

Cash flow
Many SMEs have a lack of working capital in normal times (Lee et al., 2015; Psillaki & Eleftheriou,
2015). Therefore, when they were required to shut down for a month or longer due to govern-
ment imposed Covid-19 restrictions, most Chinese SMEs had little to no available cash or cash
flow to pay their recurrent expenses, such as rent, salaries, or interest on loans. However, to
ensure business continuity for enterprises throughout disruptions (Castillo, 2005), it is impor-
tant to retain revenue streams. Therefore, SMEs could draw on savings to prevent revenue
interruptions and pay daily expenses during a shutdown period when there is little income.
Based on a reef tourism case in Phuket, Thailand, Biggs et al. (2012) found for example that
available savings were one of the three most important survival factors reported by formal
enterprises. Khan and Sayem (2013) also suggested that more substantial savings could
mean that SMEs had lower risks when disasters strike. For enterprises that have no cash
flow and no savings, government support during a crisis is important to ensure SME survival
and recovery (Biggs et al., 2012) as in addition to providing loans, governments can implement
spatially targeted tax incentives to promote post-disaster revitalisation and encourage
business reinvestment to help ease the pressure on SME capital chains (Gotham, 2013).

Supply chains
SMEs commonly have to deal with disrupted supply chains after disasters, which often
results in substantially reduced production. To take same examples, Wedawatta and Ingir-
ige (2012) found that many SMEs had not considered how floods could affect their supply
chain. Prasad et al. (2014) concluded that micro enterprises were less able to cushion
supply chain disruptions and less likely to obtain disaster aid. Tokui et al. (2017) found
that after the 2011 Great East-Japan Earthquake, enterprises suffered significant
damage from the supply chain disruption forward linkage effects. Supply chain interrup-
tions can also delay business recovery after disasters. In a study on short-term business
recovery following the 1994 Northridge earthquake, Dahlhamer and Tierney (1998)
found that the disaster induced business recovery problems were related to difficulties
in getting the supplies and materials needed to run the business. Recovery processes
and outcomes are affected not only by direct disaster induced impacts on the SMEs,
but also by longer-term problems, which can include extended periods of business inter-
ruption and difficulties in supplying or receiving products/raw materials (Tierney, 2007).

Market demand
Market demand is a significant guide for the survival and development of enterprises.
Although SMEs are generally more dynamic and opportunistic than larger firms, they
are also not immune to large contractions in demand for their goods and services
(Cowling et al., 2015). Lee and Warner (2006) found that the SARS epidemic induced a
demand shock and particularly affected consumption. The restricted physical movement
and declining consumer confidence during and after the SARS outbreak led to a significant
reduction in private consumption spending, which led to a highly volatile and uncertain
environment for the SMEs that required rapid adaptations to the changes in the market
 ENVIRONMENTAL HAZARDS 327

environment associated with the labour market, supply chains and customer demand. The
market demand changes faced by different industries after disasters have been previously
examined, from which it was found that retail enterprises experienced changed purchas-
ing patterns in post-disaster phases, such as decreases in luxury goods consumption
(Forbes, 2017; Zhang et al., 2009) and increases in low cost product consumption (Liu &
Black, 2011). Chang and Berdiev (2013) also concluded that disasters were important
determinants of insurance consumption, finding that the stimulation for the demand
for insurance products varied depending on the disaster type.
Previous research, which revealed the impact disasters can have on SMEs and the
specific factors that can affect post-disaster recovery, provided the basic framework for
this study’s questionnaire and interview design. In previous disasters, governments have
adopted various assistance policies and measures to support their SMEs. For the Covid-
19 pandemic, many governments are reacting much more proactively and strongly,
which is likely to contribute towards post-disaster recovery and long-term resilience for
SMEs. Therefore, a survey and analysis of a large Chinese SME sample could reveal the
knowledge necessary to help deal with the Covid-19 epidemic, provide guidance on
improving SME business continuity and sustainability, and provide suggestions to govern-
ments on developing specific SME focused assistance policies.

Data and methods

Sample
This study was based on data collected from a questionnaire-based survey and interviews
that were conducted in early February, 2020. To assess the perceived impact of the Covid-
19 epidemic on Chinese SMEs, a survey was conducted on SMEs based in Sichuan Pro-
vince, China. As Sichuan Province is quite close to Wuhan, Hubei Province, the epicentre
of the epidemic, SMEs in Sichuan were seriously affected by the epidemic.
An SME is a business that has revenue, assets, and employees below a certain level;
however, the criteria for determining SMEs varies across countries and industries. In
China, an SME is a business that is below a certain level for one or two indicators at the
same time in a specific industry sector. Therefore, in line with these requirements, the
size of the sampled Chinese SMEs in Sichuan Province was limited to those that had
fewer than 500 employees and those that had an annual revenue of less than 300
million CNY (42.4 million US$). For statistical convenience, the SMEs were divided into
four sectors: primary industry, secondary industry, tertiary industry, and new economy.
Data from the National Bureau of Statistics showed that the added values for the
primary, secondary and tertiary industries respectively accounted for 7.1%, 39.0% and
53.9% of GDP in 2019. The new economy is a buzzword that describes new, high-
growth industries. In recent years, China’s new economy sectors have been rapidly
pushing the country to transition to higher quality development.

Data collection
As the data collection was conducted under epidemic lockdown conditions, it was collected
in two contactless approach phases. In phase one, an online questionnaire was conducted
328 Y. LU ET AL.

on private Sichuan enterprises from February 3–10, which was shortly after the Covid-19 out-
break. At that time, most of the SMEs had not yet resumed operation, and they had time to
answer the questionnaire and express their perceived impacts of the epidemic. The ques-
tionnaire had four parts: (1) work resumption challenges; (2) the main pressures faced by
the enterprises; (3) enterprise policy requirements; and (4) enterprise characteristics.
The questionnaire was distributed on the General Association of Sichuan Entrepreneurs
(GASE) platform, which is a local, joint and non-profit social organisation that was jointly
established by domestic and foreign Sichuan entrepreneurs. The GASE has more than
30000 member enterprises all over the world, most of which are in Sichuan, China. A
total of 6243 questionnaires were distributed to member enterprises and 6034 valid ques-
tionnaires completed. Based on the SME definition driving this research, a sample of 4807
SMEs was finally selected. Table 1 presents the characteristics of the sample enterprises.
Then, in phase two, semi-structured telephone interviews were conducted with 203
primary, secondary, tertiary and new economy industry SMEs. The interview surveys
were carried out in two rounds through the secretariat of the GASE, mainly to the business
owners or executive officers. The first round was from February 4–13, and 87 interviewees
were selected from the 4807 sampled SMEs. For representativeness and convenience, the
selection criteria included: (1) the seriously affected enterprises judged from the reply to
the questionnaire survey; (2) different types of companies covering the traditional indus-
tries, such as catering, manufacturing and real estate, and new economy companies; and
(3) active GASE members that would like to answer questions. The questions included: (1)
how much the business was affected; (2) what were the biggest challenges; and (3) what
was the demand for government policies. The second round was from February 14–26,
when 116 SMEs in Chengdu (the capital of Sichuan Province) extracted from the overall
sample were interviewed with the same selection criteria as the first round. In addition
to the first-round questions, the interviewees were then asked about their attitude to
the support policies issued by the municipal government. Each interview lasted
between 10 and 30 min, and the conversations were recorded and documented.

Findings from the questionnaire survey

Work resumption
Work resumption situation
As the epidemic coincided with the 2020 Spring Festival holiday in China, China’s
control measures were extremely strict with city, community and businesses lockdowns

Table 1. Characteristics of the sample of 4807 SMEs.

Indicator Item Number Proportion
Employee numbers < 50 2866 59.6%
50 – 100 1094 22.8%
100 – 500 847 17.6%
Annual turnover < 5 million CNY (0.7 million US$) 2225 46.3%
5 – 20 million CNY (0.7–2.8 million US$) 1261 26.2%
20 – 300 million CNY (2.8–42.4 million US$) 1321 27.5%
Sectors primary industry 499 10.4%
secondary industry 1702 35.4%
tertiary industry 2002 41.6%
new economy 604 12.6%
 ENVIRONMENTAL HAZARDS 329

enforced. As the epidemic spread and deepened, the Spring Festival holiday was
extended to February 2 and many provinces including Sichuan announced that enter-
prises could not resume work before February 10; however, the survey revealed that
very few SMEs had resumed work on this date. Here resuming work just meant reopen-
ing, not that all the employees returned to the company and the production returned to
normal.
As shown in Figure 2, less than 20% of the surveyed enterprises resumed operations
before February 7; however, 82.5% had planned to resume work before March. Specifi-
cally, 50.1% of the surveyed enterprises had planned to resume work between February
7 and 14, a delay of 7–11 days, 19.9% planned to resume work between February 17
and 28, a delay of 14–25 days, and 12.6% planned to resume work in March and
beyond, delays of more than 26 days. Overall, the work resumption outlook was
unfavourable.

Main reasons for delay in resumption

As shown in Figure 3, the delay of work resumption was primarily
because most employees were unable to return to work. Therefore, nearly 30% of the
SMEs surveyed had a re-work rate of less than 70%. Another reason for the
expected low re-work rate was local government regulations on epidemic
control. The human resource shortage and the increase in the human cost caused by
the low employee re-work rate put unprecedented pressure on SME production and
operations.
The epidemic led to a significant reduction in market demand, with 35.5% of SMEs
and nearly 40% of the SMEs in the primary and tertiary industry sectors citing this as
the reason for not being able to resume work. Nearly 30% of primary and secondary
industry SMEs were also concerned over raw materials shortages, and 35.9% of
primary industry and 29.5% of new economy SMEs were worried about their cash
flow shortage.

Figure 2. Work resumption situation by sector.

330 Y. LU ET AL.

Figure 3. Main reasons for delayed resumption of work by sector.

Short-term impacts and main pressures

Short-term impacts
The impact of the epidemic has been multifaceted, with reduced operating incomes and
increased operating costs being the most direct effects. Reduced operating income was
considered by most enterprises to be the main short-term impact. As shown in Figure
4, over 80% of the SMEs experienced a decrease in operating income, especially in the ter-
tiary industry, followed by increased operating costs and extended cash shortages, at
49.8% and 48.4%, respectively. The reduced employee re-work rate was a somewhat
smaller concern even though it was cited as an important reason for enterprises being
unable to resume work.
Compared with other sectors, the secondary industry was more affected by operating
costs, which may be because they have higher fixed costs of owning and operating heavy
equipment. However, the secondary industry cash flow pressure was not as great as in the
other three sectors, probably because the secondary industry capital scale was somewhat
higher.

Main pressures
As shown in Figure 5, the difficulties in epidemic control, including shortage of epidemic
mitigation materials, risk of employee infection and the subsequent economic conse-
quences and legal liability, was the primary pressures faced by the SMEs over the short
term, with 66.5% of enterprises identifying this as a key reason. However, capital chain
and cash flow pressures were also high at 60.1%, but the secondary industry cash flow
pressures were a little lower at 55.5%.
Gaining new orders and ensuring product and service deliveries were two other main
pressure sources. Around 60% of new economy sector enterprises cited getting new
orders as their most severe problem. However, supply chain management was not
found to be a major pressure, probably because enterprises were unable to resume
 ENVIRONMENTAL HAZARDS 331

Figure 4. Main shot-term impacts of the epidemic on the SMEs by sector.

work in the short term because of the need to ensure epidemic control. As new economy
enterprises are often very sensitive to market demand and because the Covid-19 epidemic
made it difficult for enterprises to operate as usual, there was significant stress on their
capital chains and cash flows.

Epidemic duration and enterprise survival

The relatively uncontrolled epidemic was a challenge to the survival of the SMEs. As the
enterprises remained responsible for their fixed costs such as wages, rents, and taxes,
many felt they would have no choice but to declare bankruptcy when their cash flow

Figure 5. Main SME pressures by sector.

332 Y. LU ET AL.

was depleted. As shown in Figure 6, nearly 60% of the SMEs claimed they would be unable
to survive beyond 3 months under their current cash flow conditions, and 80% claimed
that they would be unable to last beyond 6 months if the epidemic impacts continued.
However, as only 25.1% judged that the epidemic impact on business operations would
last less than 3 months, most SMEs felt that they would not survive the epidemic
because of cash flow problems, that is, the longer the epidemic, the greater the
number of likely SME closures.

SME confidence
The SMEs’ confidence displayed a significant fall in the survey. In general, the SMEs
were pessimistic about the overall situation for the national economy and their own
specific company situations in 2020, and especially their first-quarter revenue
expectations.
On the micro level, the SMEs’ short-term development expectations were generally also
pessimistic. As shown in Figure 7, 74.6% were very pessimistic about their first-quarter
revenue expectations, which they expected to decline by more than 10% year-on-year.
However, the medium to long-term expectations were relatively good, with only 10%
expecting severe losses or bankruptcy, 50% expecting a certain degree of loss, and
some unsure.
On the macro level, the SME expectations of the overall economic situation were better
than their expectations for their companies. As shown in Figure 7, nearly 20% were cau-
tiously optimistic about the overall economic situation in 2020, and 34.7% were somewhat
unsure, which indicated that the business owners believed that although the epidemic
would have a significant impact on their business in the short term, the long-term
impact would be limited. Despite the inevitable losses to the SMEs, the owners still had
confidence in the government and hope for the future.

Figure 6. SME expectations for epidemic duration and their enterprise survival.
 ENVIRONMENTAL HAZARDS 333

Figure 7. SME expectations of the macro economic and the micro economic situations.

Supportive policies requested

The survey indicated that 81.7% of the SMEs requested government help and support. When
asked to choose the supportive policies they preferred most from the five options offered in
the questionnaire (Figure 8), 77.3% felt that tax relief would be the most effective policy, fol-
lowed by employment subsidies (66.0%), operating subsidies (65.2%) and financial support
(57.6%); however, the request for government services was relatively small. As shown in
Figure 8, while 84.2% of secondary industry SMEs indicated a request for tax relief, only
57.7% of primary industry SMEs felt that this would be effective, with over 70% of
primary industry SMEs indicating that they would prefer financial support.
The SME policy preferences differed across the sectors and tended to be directly related
to specific sector problems, such as a reduction in value-added tax. As light industry and
business service sector SMEs faced increased wage pressure, 30% felt that a rebate in
social security contributions would ease the cash flow pressure from wage costs.

Later effects from the interview survey

Based on the analysis of the data collected from the questionnaire, we obtained an outline
of the perceived impact of the Covid-19 epidemic on Chinses SMEs in early February, as
outlined above. More detailed impacts and longer-term effects were revealed via the
follow-up interviews in mid and late February.

Impact on work resumption

Although most of the SMEs surveyed planned to reopen in February, this would not be
easy because of the continuing contradiction between work resumption and epidemic
334 Y. LU ET AL.

Figure 8. Support policies SMEs considered most effective.

control. The epidemic significantly delayed the ability to resume work in the SMEs, which
was causing unprecedented survival pressure for many, with each day of stoppage
meaning higher economic losses, such as from expenditure on rent, wages, and loans.
Therefore, most SMEs were eager to resume work. However, resuming work also means
an increase in social contact, which could also lead to another rise in infections. If work
resumption caused a ‘secondary infection’ phase, it might also cause a ‘secondary shut-
down’ phase for which the SMEs would be legally responsible. Generally, however, as
most SMEs said they lacked the protective materials to meet the high epidemic prevention
standards set by the government, it was difficult to resume work; therefore, many
businesses were somewhat reluctant to restart in the short term.
Further, the continuing epidemic control measures meant that there was a strict block
on migrant workers returning, with many Chinese cities continuing to exclude outsiders,
which has caused significant difficulties for SME recruitment and employment. In some
places road blocks were also implemented to control the flow of people and vehicles
coming in and out of the cities, which in turn led to poor to no circulation of raw materials,
labour, and other production factors, and no offline sales, order deliveries, or other
business activities, all of which was making it impossible for the SMEs to resume work
even if they had employees.
Ferguson et al. (2006) pointed out that employee absenteeism rates during an influenza
pandemic ranged from 10% to 40%. However, in China, shortly after the Covid-19 out-
break, the absenteeism was much higher because of factors such as traffic control,
panic/anxiety, and the requirement that all people returning to their work city quarantine
for 14 days before returning to work. Therefore, as the employee re-work rate was low, this
has had a significant impact on work resumption.
 ENVIRONMENTAL HAZARDS 335

Impact on cash flow

Due to the sudden outbreak of the epidemic, most SMEs did not have sufficient cash
reserves. As many of the SMEs interviewed had had to close for 30 days or longer,
they had had little or no revenue. Further, because some consumption is seasonal,
such as in the Spring Festival period, the SMEs in the tourism, retail, catering and trans-
portation industries suffered losses that would be impossible to recoup after the epi-
demic is over. Although SME revenue was significantly affected, SMEs were still liable
for their continuing fixed and statutory costs: rent, social security, employee salaries,
debt principal and interest payments, logistics and storage fees, and refunds of
advance receipt refunds. All of these costs increased their funding gaps and led to a
further deterioration in cash flow.
Generally, the SMEs sampled had less financial flexibility to withstand long-lasting
disruptions. Taking the hospitality industry as an example, it was found in the interviews
that most SMEs had not resumed work. While some hospitality SMEs had set up takeaway
platforms, the reduced sales incomes were unable to meet the expenses associated with
salaries, rent and other fixed costs. Some enterprises also complained that the excessively
high online service fees (a maximum of 21%) was difficult for online catering enterprises.
Hospitality SMEs, therefore, were facing rent and employee wage pressures, with
one interviewed business owner stating that rent accounted for 10% of the
business’s turnover.

Impact on the supply chain

As the epidemic led to a nationwide shut down that blocked transportation across the
country, asynchronous work resumption on upstream and downstream industrial chains
and cross-provincial and cross-regional logistics difficulties significantly impacted supply
chains. The supply-demand relationships in some industries was profound; for example,
SMEs in the vacation industry, such as accommodation and catering, education, culture,
sports, and entertainment were directly and severely impacted, which was being gradu-
ally transmitted to the supply industries upstream. The interviews revealed that some of
the SMEs engaged in concentrated farming in rural areas had been experiencing a
significant decline in orders because of the collective ‘shutdown’ of the hospitality
industry.
The impact on the SMEs would be even more severe if the supply chains failed to
recover. Difficult in obtaining commercial credit, a common problem faced by the inter-
viewed SMEs, meant they would be unable to build up their finished goods inventory
or to stock up on raw materials to protect against supply chain disruptions. If upstream
suppliers were unable to resume production, this disruption in the supply chain could
prevent many downstream SMEs from restarting. Therefore, a slight move in one
section of the supply chain could severely affect the situation as a whole, and problems
in any link in the industrial chain such as agricultural product transportation, agricultural
materials supply, processing and sales could affect the whole supply chain, which meant
that the collapse of individual enterprises could lead to general enterprise collapses across
the industrial supply chain. This was particularly the anxiety of the interviewed SMEs in
agriculture and manufacturing enterprises.
336 Y. LU ET AL.

Impact on market demand

As most SMEs are privately run and therefore dependent on regular customer traffic for
survival, they were the hardest hit by the reduced market demand caused by the epi-
demic. Because Covid-19 is a highly infectious and lethal virus, people’s sense of insecurity
was significantly heightened with many feeling severe panic. As a result, services involving
face-to-face contact were dealt a severe blow because of the widespread fear of infection
through such interactions. Therefore, this battered consumer confidence continued to
seriously affect the degree of their satisfaction with the current situation and near
future expectations.
The panic and anxiety surrounding the epidemic meant that consumers were
shunning shops, restaurants and entertainment venues, and travellers were cancelling
trips. Further, as the restrictions taken to contain the virus outbreak had required
people to stay at home, economic activities declined and social demand was sup-
pressed. According to our interviews, the hospitality/travel services sector was hit the
hardest. The continuing impact of the epidemic had caused the SMEs associated
with the travel, hotel accommodation, restaurant and leisure-related sectors to
remain extremely vulnerable.

Conclusions and policy recommendations

This paper has explored the perceived impact of the Covid-19 epidemic on Chinese SMEs
shortly after its outbreak, through a survey on 4807 SMEs in Sichuan Province, China. It was
found that the epidemic was perceived to have considerable impacts on SMEs’ work
resumption, income and confidence, and was a huge challenge to the survival of many
SMEs. Specifically, most SMEs were unable to resume work mainly because of the inability
of employees to return to work, the stringent government lockdown requirements, the
reduced market demand, and a shortage of epidemic mitigation materials. Many SMEs
were also facing cash flow risks as they had to continue to pay for various fixed expendi-
tures even though they had little or no revenue, which might result in capital chain rupture
and a possible bankruptcy crisis. Therefore, most of the SMEs requested government
policy support to overcome their current and predicted difficulties.
To some extent, saving the SMEs has become critical to saving the economy and saving
livelihoods (Liu et al., 2013). The faster businesses can reopen following this disaster, the
faster the community members can access products, services, employment, and a func-
tioning marketplace, and the faster the community recovers (Ergun et al., 2010).
Based on these findings and our analysis, there are three critical aspects to saving SMEs
in this epidemic crisis or a similar disaster, whether in China or elsewhere. First, it is necess-
ary to alleviate the survival pressure on the SMEs and especially their cash flow difficulties
by reducing their ongoing costs and providing access to external financing. Second, it is
necessary to assist the SMEs to resume work and production as soon as possible. Govern-
ments should decrease restrictions to increase the flow of people and logistics to ensure
that employees can return to work, raw materials are available, and products can be deliv-
ered. Finally, resuming production needs to be combined with stimulating consumption,
which is the direct driving force behind the expansion of domestic demand in response to
supply. In this regard, the following recommendations are given.
 ENVIRONMENTAL HAZARDS 337

Relieve cash flow pressures to assist the SMEs to survive

There are three main ways to relieve cash flow pressure: increase revenue, reduce
expenses and obtain external financing. Increasing SME income is dependent on restoring
production and livelihoods, and to reduce expenses, it is necessary to reduce the ongoing
SME operating costs. Therefore, it is recommended that the government provide tax sub-
sidies, financial support, employment subsidies, and operating subsidies. Access to exter-
nal financing could mitigate the cash flow disruption risks, reduce finance costs and
improve funds availability by appropriately reducing the loan interest rate, improving
loan renewal policy arrangements, and increasing credit loans and medium and long-
term loans. The government could also consider establishing an SME rehabilitation fund
to lift them out of this economic crisis. Many interviewed SMEs also mentioned that as
bank financing was more concerned with corporate fixed assets, it was difficult for
them to meet the various bank loan conditions. Therefore, it is further recommended
that the government moderately lower the threshold for SME loans, or implement
short-term SME loan arrangements that have lower thresholds to ensure more SMEs
can receive loans in the recovery period.

Resume work in an orderly manner and unblock the circulation in the market
Ensuring that employees can return to work, raw materials are available, and products can
be delivered are necessary conditions for resuming work and production. Therefore, to
encourage enterprises to resume operation, accurate control strategies in different
regions and on different levels are needed to gradually open the flow of people and logis-
tics and lift the freight logistics restrictions. As industrial chains are interlocked, a block in
one link means that neither the upstream nor the downstream enterprises can operate.
Therefore, it is necessary to strengthen the connections between the upstream and down-
stream production and sales between the regions and promote a coordinated resumption
of production in all links of the industrial chain at the same time to avoid any inconsisten-
cies between the upstream and downstream enterprises that could lead to a shortage of
raw materials.

Stimulate consumption and promote market demand to boost production

In most countries, consumption is the main driving force of economic vitality and
growth. Therefore, a recovery in consumption can boost production, increase employ-
ment, and raise incomes, which would then further increase consumption and
achieve a virtuous circle. As the key to resuming production lies in expanding
demand and stimulating consumption, it is necessary to combine post-epidemic work
and production resumption with an expansion in domestic demand by releasing the
consumption that has been restrained or frozen during the epidemic and fostering
new types of consumption. However, as work resumption in industries such as catering,
retail, offline education, and entertainment will continue to be restricted for some time
because gatherings of people are not encouraged due to the risk of recurrent infections,
the government could encourage online consumption by issuing e-coupons and
decreasing on-line platform service fees.
338 Y. LU ET AL.

Saving lives or saving the economy is the dilemma faced by governments all over the
world trying to deal with the Covid-19 global pandemic. The Chinese government decisively
focused on saving lives by conducting stringent control measures, which unavoidably
resulted in an economic decline. According to data released by the National Bureau of Stat-
istics on April 17, 2020, the first-quarter GDP fell 6.8% year on year in wake of the Covid-19
outbreak, China’s economy shrank for the first time since at least 1992 when official quar-
terly GDP records started. A strong recovery in the remaining quarters of 2020 because of
the accelerated resumption of work and production, the economy and the SMEs still
looks challenging, especially concerning the risk of a second domestic coronavirus wave
and the new uncertainties brought by the spread of overseas epidemic cases into China.
Hopefully, the Chinese government has taken a series of positive steps to shore up the
economy against the epidemic’s impact, such as implementing flexible and targeted monetary
policies and measures to assist market participants resume economic activity. The government
has also decided to cut some pension contributions and insurance fees to assist companies
affected by the Covid-19 epidemic and especially the SMEs. They have also called on
financial institutions to provide interest rate concessions to brick-and-mortar businesses,
limit loan interest rates, and reduce SME financing costs. It is hoped that the effects of the gov-
ernment’s stimulus measures will be visible in the GDP growth figures in the second, third and
fourth quarters of 2020, which could be higher than the markets have previously forecast.
As the first country to have a significant outbreak of Covid-19, China is also the first
large economy to try to reopen after a lockdown. The early perceived impact of the
Covid-19 epidemic on SMEs revealed by this research shows that this will not be easy,
but China’s near-term future also has enormous implications for the rest of the world in
combating the epidemic. Therefore, further research might be useful and further reveal-
ing, including: (1) to follow up this sample in Sichuan over the next several years to see
if the expectations and fears of the SMEs in February 2020 are fully realised; (2) to evaluate
the effects of government support policies on the recovery and redevelopment of those
SMEs to judge their effectiveness; and (3) to extend the research to other parts of China
and collaborate in similar SME projects in other countries.

Acknowledgements
This research was supported by the Humanity and Social Science Youth Foundation of Ministry of
Education of China (Grant No. 17YJC630096), the Major Program of the Social Science Foundation
of Sichuan (Grant No. SC18EZD026) and the International Visiting Program for Excellent Youth
Scholar of SCU.

Disclosure statement
No potential conflict of interest was reported by the author(s).

Funding
This work was supported by Major Program of the Social Science Foundation of Sichuan: [Grant
Number SC18EZD026]; International Visiting Program for Excellent Youth Scholar of SCU: [Grant
Number SCU20191275]; Humanity and Social Science Youth Foundation of Ministry of Education
of China: [Grant Number 17YJC630096].
 ENVIRONMENTAL HAZARDS 339

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