Abstract: Small and medium-sized enterprises (SMEs) have made important contributions to China's economic development.However,SMEs generally exhibit weak resilience and are constrained by limited capacities of financing and risk sharing.When facing negative economic shocks,they often lack the resources and capabilities to adjust and alleviate difficulties.Therefore,what challenges will SMEs face under negative economic shocks?How will these challenges hinder SMEs from recovery and growth?What adjustments will they make to cope with these challenges?How will negative economic shocks affect the development of SMEs in the medium and long term?Answering these questions not only holds clear theoretical significance but also practical significance and policy implications,especially today when many SMEs have not fully recovered from the negative economic impacts of the COVID-19 pandemic.


Based on data from two rounds of the Enterprise Survey for Innovation and Entrepreneurship in China (ESIEC) conducted in 2018 and 2023,we attempt to answer the series of questions raised above using the COVID-19 pandemic as a typical negative economic shock.The ESIEC is a field survey conducted by Peking University on private enterprises in China.In 2018,the research team conducted the first baseline survey,covering 6198 firms and accumulating quite detailed enterprise data.In 2023,the research team conducted the second large-scale field survey,completing on-site surveys for 6117 enterprises and investigating the challenges encountered by enterprises during the pandemic and their responses.The two rounds of surveys happened to span the COVID-19 pandemic,providing us with an opportunity to systematically evaluate the impacts of negative economic shocks on SMEs,the underlying mechanisms,and to detail the adjustments made by SMEs to cope with these shocks.
In this paper,we employ a “quasi-difference-in-differences” model to examine the challenges faced by SMEs under the impact of the COVID-19 pandemic,as well as the strategies they adopted in response and adjustment,taking advantage of the variation in strength of pandemic control measures across regions and over time.We find that:① The pandemic influences the supply side of SMEs mainly due to the “shutdown” effect caused by supply chain disruptions.②  To cope with the impact of the pandemic on the supply side and strengthen the resilience of the supply chain,SMEs need to systematically adjust the size and spatial layout of  the supplier network,but at the same time bearing higher transportation and transaction costs.This effect is more pronounced in regions with lower industrial agglomeration.③ The pandemic affects the demand side of SMEs mainly due to the “contraction” effect brought about by market shrinkage.④ To cope with the impact of the pandemic on the demand side,SMEs need to further explore customer resources,strengthen innovation efforts,and adjust business models to ensure market size and increase profitability.Whether these adjustments can be made in a timely and effective manner is highly correlated with the resources and backgrounds of the enterprises and entrepreneurs.⑤ The pandemic has significantly negative effects on revenue and gross profit,and may lead to a “scarring effect” delaying the recovery and development of SMEs.

These findings contribute to our understanding of the key mechanisms for the recovery of SMEs in the post-pandemic era.They also provide theoretical insights and empirical evidence for the targeted design of policies to assist SMEs,facilitating an efficient and balanced economic recovery.Specifically,the  “scarring effect” of the negative economic shock like the COVID-19 pandemic may hinder the development of SMEs in the medium and long term not only due to the persistent impacts of the  “shutdown”and  “contraction”effects but also largely due to a series of adjustments made by enterprises in response to the shock.Policymakers should consider aligning relief policies with the adjustments made by enterprises themselves to amplify policy impacts,thereby effectively promoting and accelerating the recovery of enterprises and the economy.At the same time,negative economic shocks often lead to a  “reshuffling”of the market landscape.Enterprises that can adjust promptly and effectively,and even capitalize on opportunities to upgrade,often gain greater competitive advantages and market share after the shock,potentially leading to changes in market structure and even widening regional disparities.Therefore,in policy design for the post-pandemic era,it is also necessary to fully consider the balance between enterprises and between regions,thus achieving economic recovery efficiently and equitably.