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PIF boss bets big on golf and football but domestic issues are his biggest challenge

A few months before Newcastle United clinched a return to Europe’s top football competition the Champions League after two decades on the sidelines, Yasir al-Rumayyan flew the team to his Riyadh residence for a December pep talk.

It had been just over a year since the club’s acquisition by Saudi Arabia’s Public Investment Fund, and the 53-year-old PIF chief and Newcastle chair rallied the players with a speech before they bonded over a game of simulated golf.

While Newcastle was experiencing a turnround in its fortunes, Rumayyan’s other big sports venture, the upstart LIV golf tour, was flailing as it struggled to attract sponsors and battled with the US PGA in the law courts. The foray into golf, a personal obsession of Rumayyan’s, did not seem promising.

This month’s announcement that LIV and the PGA were joining forces, with Rumayyan as chair, took many observers by surprise. While the plan still faces obstacles, including scrutiny from US lawmakers, it has elevated Rumayyan’s reputation as one of the world’s most influential sovereign wealth fund heads.

A confidant to Crown Prince Mohammed bin Salman, Rumayyan is charged with overseeing investments and reforms that are dear to the royal. Some attribute his rising profile to acting as a yes-man to the ruler, others to his management skills and the occasional stroke of luck. 

The 2021 decision to set up LIV “was a crazy idea, it was such a long shot”, recalled a Saudi former colleague who is familiar with his career. “But if God is smiling on you . . . .

Born in the Saudi province of Al-Qassim, Rumayyan graduated from a local university before going into banking. He worked his way up the Saudi Hollandi bank before a stint in the Capital Markets Authority. By 2015 he was heading financial services provider Saudi Fransi Capital when then deputy Crown Prince Mohammed tapped him for the PIF.

“I didn’t know him at all . . . I thought it was going to be an interview but it was like, ‘here’s what I want you to do’,” Rumayyan recounted in a 2020 interview with Bloomberg.

As governor of the PIF, Rumayyan oversees $650bn in assets, including its $45bn bet on Japanese technology group Softbank’s Vision Fund, $20bn in a Blackstone infrastructure fund and a stake in Uber that gave him a seat on the ride-hailing group’s board before he stepped down to focus on other commitments.

He also chairs Saudi Aramco, a job he took as the state oil company was preparing for an initial public offering whose proceeds would go to the fund, which has also been transferred 8 per cent of the company.

One foreign executive said Rumayyan’s diary was so crowded that when he sought a meeting with the PIF chief, he was given a 15-minute slot more than three months away.

Navigating domestic matters might be his biggest challenge, as well as the riskiest. Rumayyan’s role as governor of the investment fund, which is chaired by Crown Prince Mohammed, places him at the forefront of the kingdom’s drive to diversify its economy beyond oil.

Ministers and men of Rumayyan’s standing often have a short shelf life in Saudi Arabia. The crown prince replaces them at will and is intolerant of mistakes or people standing in his way.

The PIF-led reforms, involving a number of vast projects and investments in nascent industries from electric vehicles to gaming and vapes, are seen as crucial by the crown prince to winning support at home as he prepares to eventually succeed his father King Salman, one western diplomat said.

Rumayyan has received both plaudits and criticism for the domestic activities of the PIF, which in building up national champion companies to jump-start lagging sectors such as housing has crowded out private sector actors.

He has outlasted many peers. His secret? “God has mercy on a man who knows the limits of himself,” said the Saudi former colleague, quoting an Arab proverb.

Some people familiar with the PIF say Rumayyan delegates the day-to-day affairs of the fund and his growing empire. He is also close to outside advisers, such as Wall Street dealmaker Michael Klein.

“It’s typical Saudi leadership,” said one former senior official at the fund. “You round up the people around you, and it’s a top-down leadership. You take the order and try to execute, and where you don’t know, you bring in consultants.”

Rumayyan is open to those offering counsel, according to the former colleague. “Every top banker in the world is fighting to give them advice,” he said. “He listens to it, and he is a hard worker.”

A bon vivant, he has thrown dinner parties at his home on the eve of the PIF-organised Future Investment Initiative, the “Davos in the Desert” summit that seeks to project the new Saudi Arabia to the global elite.

People who know him say Rumayyan is affable, as well as friendly and obliging when crowded by journalists and business suitors. With his coiffed curly hair, Roman nose and tailored suits, he cuts a distinctive figure when he shows up at St James’ Park to cheer on Newcastle.

But he has never been regarded as any sort of business or networking genius, several people who have known him since his banking days told the Financial Times.

That he has managed to impress and win the trust of Prince Mohammed has baffled some observers.

“He’s a nice guy [but] I was surprised he got the job,” said one banker who has met him over the years.

Others view his rise as a measure of pliability and readiness to please the crown prince. He has a chummy relationship with Prince Mohammed, one adviser said, laughing and joking with him. But he remains deferential.

“In order to go somewhere in that part of the world you’ve got to be at least somewhat acquiescent to how things are going,” said the former PIF official.

Rumayyan’s adviser said he was attuned to the scale of the prince’s transformation project for the kingdom, challenging bankers’ scepticism and encouraging more ambitious proposals to satisfy his boss.

Supporters say Rumayyan deserves credit for his achievements.

“Yasir has a record of doing better than everybody expected him to do,” said one executive with a company that works with the PIF. “In the beginning it was not unusual for people to say ‘really?’ when they met him. But he’s got some talent, he’s resilient and doesn’t take himself too seriously.”

Renzo Rosso, founder of the Diesel brand and chairman of Italian fashion group OTB (Only The Brave), is in advanced talks to buy a majority stake in upmarket shoemaker Gianvito Rossi, industry sources with first-hand knowledge of the matter said. OTB, which is aiming to float in Milan next year or in early 2025 at the latest, has made no secret of its appetite for acquisitions.

The Italian fashion group is fighting competition from Cartier owner Richemont, but OTB is likely to be chosen as the preferred bidder and should strike a deal with the Italian shoemaker soon, six different industry and banking sources said. “It is expected that OTB will be chosen as the preferred bidder and a deal could be announced in the next few days – if all goes well,” one Milan-based banking source told Miss Tweed on condition of anonymity. Several industry sources said Armani also looked at the brand, but talks have not gone went very far. “Armani is not equipped to handle such an acquisition, it’s not in their DNA,” one of the sources added. “While Richemont has little experience with luxury shoes.”

OTB’s most recent acquisition was Milan-based brand Jil Sander in 2021. Before that, it bought Los Angeles’ brand Amiri in 2019 and Italian brand Marni in 2013. Renzo Rosso’s Only The Brave group also owns Maison Margiela. His son Stefano Rosso, already an OTB board member, has just become Margiela’s chairman. The OTB group is usually more into streetwear, edgy and quirky aesthetics than Gianvito Rossi’s timeless elegance. “However, there are not that many brands on the market,” one industry source said. “That’s why they are so keen to buy Gianvito Rossi.” OTB declined to comment.

Gianvito Rossi is estimated to generate around €100 million in sales and an Ebitda (earnings before interest, tax, depreciation and amortization) margin of around 25 percent. The designer is keen to retain a 25 percent minority stake. He is hoping his brand will fetch a valuation of between €350-€400 million, the sources said.

COMFORTABLE SHOES

Gianvito Rossi, son of the famous Italian shoemaker Sergio Rossi, made a name for himself by launching his own eponymous brand in 2006. His stilettos, which cost between €600 and €900, are regarded as ultra-feminine and sensual and usually feature thin straps. They are among the only luxury high heels women can wear for hours without being in pain thanks to their lightly cushioned insoles – a secret Sergio Rossi passed on to his son. On its website, the brand describes them as comfortable must-haves for every wardrobe, “from casual days to red carpet.” Gianvito Rossi also sells a few belts and clutches, but it does not have much potential to branch out into other categories, industry experts say.

The brand’s designs are regarded as more audacious and innovative than Sergio Rossi’s as the latter are quite conservative with classic buckles and thick straps. Sergio Rossi died from Covid-19 complications in 2020 at the age of 84. Gianvito also suffered from Covid during the pandemic and his son Nicola helped run the business during that difficult time. That’s when it became clear that Nicola was not ready – at least not yet – to take over the business if he so wished later, several industry sources said. He’s currently enrolled in a two-year MBA program at the Kellogg School of Management, part of Northwestern University in Chicago. He expects to graduate next year, he wrote in a post on his LinkedIn account. His sister Sofia and mother Monica “play key roles” at the company, the brand says on its website.

For many years, Gianvito Rossi hesitated between going it alone or teaming up with a company with bigger pockets that could finance the opening of more boutiques, particularly in key markets such as China. During the pandemic, the brand’s sales were badly hit by the absence of events and occasions to wear high heels. Before that, Gianvito Rossi, like many other high-end rivals including Jimmy Choo and Christian Louboutin, suffered from the market’s new-found enthusiasm for streetwear and sneakers.

In the past two years, demand for stilettos has come roaring back. With sales back on the rise, now is a good time for Gianvito Rossi to put itself on the market, the sources said. Italy’s MF Fashion media reported that starting in 2021, Gianvito Rossi’s sales rose in the high double digits, helped by new stores in the Middle East and Asia – and in 2022, the brand’s revenue from its directly operated stores rose more than 50 percent. Contacted by Miss Tweed, a spokesman for Gianvito Rossi declined to confirm these figures and did not wish to comment on its talks with OTB. He would not even provide information about the brand’s history or number of stores. Gianvito Rossi, the designer, is a rather shy person who rarely gives interviews.

INDUSTRIAL PARTNER

Gianvito Rossi was bent on working with a big fashion and luxury group and did not want to team up with a private equity firm, the sources said. LVMH was not interested. The group’s investments in luxury shoemaking have not produced notable successes up until now. In 2020, the industry leader split from young shoe designer Nicholas Kirkwood after seven years. In 2014, private equity firm L Catterton bought Giuseppe Zanotti, but the brand is understood to be losing market share compared to rivals such as Exor-backed Christian Louboutin. Last month, Capri’s Jimmy Choo reported a 3 percent drop in sales in the first quarter to $151 million.

Kering, which is always on the prowl for acquisitions, did not express interest in Gianvito Rossi, industry sources said. That’s pretty understandable. It has spent enough money on the Rossi family as it is. The French group lost more than €200 million trying to revamp Sergio Rossi for more than 15 years, between the losses it had to finance and the price it paid for the brand. Sergio Rossi was founded by Gianvito’s father in 1951 in San Mauro Pascoli, near the Adriatic Sea. Like some other major Italian brands such as Ferragamo, it never succeeded in becoming particularly relevant in today’s highly competitive fashion world.

Sergio Rossi was the third luxury brand the Pinault family invested in after Saint Laurent and Gucci in 1999. The Gucci Group, which was the name of the Pinault luxury arm at the time, bought a 70 percent stake in Sergio Rossi for $96.2 million and acquired the remaining 30 percent in 2005.

The Pinault family invested in the expansion of the brand’s shoe factory outside Florence, which produced for rival brands such as Hermès and Dolce & Gabbana. The strategy was that it would make shoes also for its own brands like Gucci, Saint Laurent and the others it would later acquire. But none of them heeded its demand. As a result, Sergio Rossi’s beautiful and best-in-class factory was not used to its full potential, industry sources say.

CONTROL

It is interesting to note that even though the Pinaults owned Gucci and Saint Laurent, they could not force them to adopt a given manufacturer. The Italian and the French brand wanted to continue working with their usual partners and build their own facilities. Critics say this highlighted already the lack of control that the holding structure today called Kering is perceived to exert on the brands it owns. This remains an area of concern for investors, particularly after last year’s Balenciaga PR fiasco from which the brand continues to suffer.

In 2015, Kering sold Sergio Rossi to Investindustrial, an Italian private equity fund run by entrepreneur Andrea Bonomi. Kering was so keen to get rid of Sergio Rossi that it agreed to recapitalize the company, injecting more than €20 million to encourage Investindustrial to buy it. A few years later, in 2021, Chinese conglomerate Fosun, owner of Lanvin, Wolford and a few other fashion and luxury brands, bought Sergio Rossi for one symbolic euro. Sergio Rossi is understood to still be operating at a loss and its strategy is unclear. Its factory, however, still produces shoes for Amina Muaddi. Its CEO Riccardo Sciutto, who continues to own a stake in Sergio Rossi, left the company at the end of May.

One thing is for sure: the use of the Rossi name by Gianvito, who effectively took the Pinault family’s money to set up a rival brand with help from his father, has not helped Sergio Rossi’s fortunes. The Pinaults could not prevent Gianvito Rossi from launching a brand under his own name. Gianvito Rossi’s success clearly overshadowed the Sergio Rossi brand. When Sergio Rossi was put back on the market two years ago, Gianvito, the designer, tried to buy it, but he did not have sufficient funds and determination to develop it. Having turned the page on the Sergio Rossi era, he’s now hoping OTB will help the Gianvito Rossi brand conquer new markets.

The Paris men’s week show is expected to play a major role in LVMH’s plan to turn its biggest label into a more than €20 billion a year “cultural brand.” That, plus what else to watch for this week.

On Tuesday, Pharrell Williams will show his first collection for Louis Vuitton at Paris men’s fashion week, one of the most hotly anticipated debuts in recent memory.

Details are being kept under wraps, but the marketing machine is already in motion: last week, Williams posted an image to Instagram of himself standing in front of a Paris billboard featuring a pregnant Rihanna wearing Vuitton checkered print and holding multiple bags.

Coverage in the months since Williams’ February appointment has focused less on the aesthetic direction and more on the sheer scale of whatever he and LVMH are planning for the luxury conglomerate’s flagship brand. Last year, Louis Vuitton became the world’s first €20 billion luxury label, so whatever Williams, as well as new CEO Pietro Beccari, are planning has to be big. On the business side, a playbook similar to Beccari’s efforts at Dior is taking shape: ever-bigger runway spectacles and store footprints, including a rumoured conversion of its Paris headquarters into a hotel-megastore.

Tuesday’s show should provide clear signs about the creative strategy that will underpin this expansion. Williams is a successful entrepreneur with his own streetwear, skin care and sneaker lines. But the primary reason he was brought on is to cement Louis Vuitton as a “cultural brand” (prior examples include the global Yayoi Kusama activations and a campaign featuring both Cristiano Ronaldo and Lionel Messi). The goal is to link Vuitton with art, sport, music, film and anything else that occupies space in consumers’ minds, in many ways an extension of the project that began with Marc Jacobs 25 years ago to build fashion buzz around a somewhat dusty luggage brand.

The cultural brand concept is less of a linear move than the jump from travel to fashion. But once you get to Louis Vuitton’s scale, there’s no single category or market that is going to keep up momentum. The sample is small, but with a few key exceptions, brands struggle to maintain their hold over consumers once annual sales are deep into eight digits. It’s hard to be cool when you’re that big, and it’s a rare new idea that can move the needle at that scale. Gucci’s troubles began right around when it approached the €10 billion mark in 2021. In the mass market, Gap Inc. stalled out once it hit $16 billion in annual sales in the early 2000s. It’s still searching for its next act.

Nike did manage to double annual revenue to $20 billion in the 2000s and then again to $40 billion in the 2010s, but has struggled to keep up that pace in the 2020s.

In luxury, there are still growth levers to pull. Louis Vuitton can open stores in new cities, and upgrade its flagships in existing markets. It can plaster its LV logo across the 2024 Olympics, conveniently held in Paris, and sell $39,000 NFTs. And it can hand the reins to Pharrell Williams to put on a hell of a show on Tuesday.

Established luxury brands, emerging designers and buzzy technical players alike mixed relaxed suiting with sportswear at the influential Pitti Uomo trade show.

FLORENCE — “A mixture of comfort with casual elegance”: That’s how Jian DeLeon, men’s fashion director at Nordstrom, described the prevailing trends in menswear as seen at Pitti Uomo this week.

The June 2023 edition of the semi-annual Florence trade show brought together menswear insiders from buyers to street-style aficionados alongside esteemed luxury houses like Brunello Cucinelli and technical outdoor brands such as Snow Peak and Goldwin.

The gathering was the first time since the pandemic that brands, buyers and press from key Asian markets were able to travel thanks to the lifting of Covid-19 travel restrictions earlier this year: Buying teams from coveted retailers like United Arrows and Beams of Japan were present en masse. Meanwhile, China’s reopening made a significant impression: 58 companies and 163 attendees from the country were present last week, compared to just a handful of attendees last summer, Pitti chief executive Raffaello Napoleone told BoF.

Looking to cash in on increased footfall from international buyers, 825 brands exhibited their new collections, up from the 680 that showed last summer. The brands and buyers also came out to take the temperature of a menswear market in flux.

While the menswear market is expected to remain on fire—growing 5.8 percent to $548 billion annually for the next four years according to Euromonitor, trends in the key category are changing fast. The decline of logomania and brand tribalism has seen many streetwear brands lose heat — and sales — while a return to more elevated styles of dressing is seeing a resurgence as men’s tailoring and formalwear businesses modernise their offering.

Suits are always in style at Pitti—previously the locus of “#menswear” and a magnet for peacocking Instagram dandies. But this year saw renewed energy around the category as brands offered a more contemporary take, filled with relaxed “soft” suiting, often paired with t-shirts and casual shoes, or more casual, expressive shirting.

“I think in menswear we’re seeing a blurring of the categories which is evident here at Pitti,” said Napoleone. “It’s no longer about suiting, casual and sportswear being for separate consumers — we’re now in a world where men can wear all three at the same time.”

The blurring of formal and casualwear was exemplified at Fendi’s show on Thursday night, which championed tailoring with a contemporary spin. Held at sunset at the brand’s new production facility in the Tuscan countryside, models walked the runway through aisles of machinery in loose-fitting, workwear-inflected shapes rendered in luxe suiting fabrics—paired with sneakers and “Crocs”-style clogs. Instead of artistic director Silvia Venturini Fendi appearing to take the bow after the finale, the staff working at the machines joined the models on the runway to rapturous applause.

Later that evening, Eli Russell Linnetz — Pitti’s guest designer — continued the theme of casual tailoring, but this time adapted for euphoric partywear. In his first ever IRL runway show, the LA-based designer sent surfer-dude models out in rhinestoned silver trousers, silky, see-through shirting, and sleeveless jackets.

Buyers at Pitti said brands were responding to changing perceptions as to the role of suiting and tailoring in men’s daily wardrobes.

“Customers realise that they can shop for tailoring they actually want to wear, rather than feel like they have to,” said Nordstrom’s DeLeon. “This has encouraged people to be a bit more expressive with their wardrobes, and opting for garments that complement their personal style, which more and more is leaning towards a mixture of comfort with casual elegance.”

Tailoring Reimagined

As the pandemic has receded, demand for casual suiting has soared even among buyers of ultra-luxe made-to-measure suiting as wealthy consumers look to elevate their wardrobes while projecting a cooler image and clinging to post-pandemic standards for comfort.

Storied Florentine tailor Liverano and Liverano made its debut at the trade show to much excitement among buyers, signalling a shift of traditional brands catering to more casual suiting consumers.

Former Valentino and Zegna designer Aldo Maria Camillo presented his namesake brand’s second collection at Pitti this year, and said he was taken aback by the demand he’d already received for his brand’s avant-garde wide-shouldered, double-breasted suit jackets and baggy tailored trousers, which models paired with a simple vest underneath. The brand, run in partnership with United Arrows co-founder Hirofumi Kurino and based between Paris and Tokyo, is already stocked at over 15 retailers including Tokyo’s Dover Street Market Ginza and United Arrows, and last week had conversations with buyers from Selfridges and Bergdorf Goodman as it looks to expand in Western markets, Camillo told BoF.

Some bigger suiting brands, such as Italian formalwear maker Kiton, are also seeing soaring sales. The Neapolitan company was present at Pitti last week to promote its lifestyle sub-label KTN, which blends sports-inspired clothing with formalwear. After seeing unprecedented demand over the last year-and-a-half for both its suiting and casualwear, boosted by the viral quiet luxury aesthetic, the company expects to generate revenues of €200 million ($218.9 million) this year, up from €160 million in 2022.

“2022 was a record year for us,” said chief executive Antonio De Matteis. “Men are far more intentional now in the way they dress and this has led to new growth opportunities.”

One of the biggest draws of the trade show was Brunello Cucinelli’s “Bohemian Evolution” collection for spring-summer 2024. The brand covered its bases, leaning into the occasionwear boom with silk tuxedos and phasing out sneakers almost entirely to focus on derby shoes, loafers and brogues. But the collection also featured 1970s-inspired travel outfits such as shell tracksuits and sweaters once worn by tennis pros. The brand’s daywear suiting took on a more casual look this season, with shirts and T-shirts cropped shorter, paired with loose, wide-legged trousers. Finally, there was a luxury athleisure capsule dedicated to racquet sports.

Buyers agree that Italian formalwear brands like Cucinelli are well placed to cash-in on the “quiet luxury” dressing craze—a TikTok-fuelled discourse that has celebrated ultra-luxe yet logo-free fashion.

“Cucinelli is a really key brand for us,” said Thom Scherdel, a menswear buyer at Browns. “The Italian lifestyle mood translates really well into that aspirational European, English or American consumer who really wants to buy into that elevated aesthetic.”

Gorpcore Grows Up

Even outdoors brands — which in recent years have ridden a wave of popularity from streetwear fans for their technical clothing covered in zips, multiple pockets and logos — are adapting their product offerings to keep up with menswear’s new normal.

Japanese outerwear label Goldwin for example, is seeing growing popularity in its lifestyle category for newly introduced products such as its minimalistic, baggy suit separates made from ultra-lightweight wool and bamboo fibre. Rather than the typically loud gorpcore fair consumers have come to expect in recent years, the rest of the brand’s collection is intentionally minimal and predominantly offers toned-down colourways like charcoal grey and navy blue. The idea was to design technical gear that consumers could blend with more formal pieces, such as shirts and loafers, said Tayuki Kinami, the brand’s general manager.

“We can expect to see a lot more soft tailoring from outdoor brands who can bring some really interesting products through using technical fabrics,” said Chris Fisher, head of ready-to-wear menswear buying at Browns.

Fellow Japanese gorpcore favourite Snow Peak garnered attention from buyers for its similarly minimalist collection, as did Italian technical streetwear start-up Off Grid.

“The streetwear consumer isn’t necessarily trading up to Zegna. It’s sort of back to the era where items like the workwear pant and oxford shirt were the preferred flex,” said DeLeon. “Streetwear has always had a symbiotic relationship with the rest of the fashion world, and more subdued offerings in the market reflect that.”

- "It's hardly possible to predict any final decision here, but I can say that, judging de facto by the status quo that we have, this deal has no chance."

- Will position Israel as a communication land bridge connecting the Gulf countries and Asia to Europe

Former Google CEO Eric Schmidt purchased an abandoned 267-foot superyacht anchored at a Caribbean marina for the past year.

"Alfa Nero" was ditched in Antigua in March 2022, shortly after Russia invaded Ukraine. The likely owner of the vessel is sanctions-hit Russian oligarch Andrey Guryev. The abandoned vessel was quickly deteriorating, uninsured, and posed a significant risk to other yachts in Falmouth Harbour.

Earlier this year, the Antigua and Barbuda government put Alfa Nero, equipped with an infinity pool and helipad, up for auction to cover the monthly docking fees of $112,000.

On Friday, Bloomberg reported the winner of the auction was Schmidt. He "won the auction this morning in a fully transparent process," purchasing the vessel for $67.6 million, according to Sir Ronald Sanders, Antigua's ambassador to the US.

The US Treasury sanctioned Guryev last year and said he purchased the vessel for $120 million in 2014. He has denied ownership of the yacht.

After a year of being docked with only a skeleton crew, Alfa Nero's next move will likely be dry dock, where it will undergo maintenance to ensure it's still seaworthy.

Beijing pushes banks to extend loans to small businesses, with limited success

China’s small businesses are cutting staff, struggling to pay off debt and nervous about the future. Their plight paints a grim picture of the country’s flagging recovery.

The country’s small and medium-size enterprises are crucial to the economy; they employed around 233 million people by the end of 2018, which was the last time this data was made public. But official data, recent disclosures from lenders and interviews with small-business owners show that many of these companies are suffering.

“The biggest problem for small and micro enterprises now is survival,” said Ji Shaofeng, the founder of a micro loan trade association based in China’s eastern Jiangsu province.

The struggles of China’s small businesses make clear how far the country has to go before it fully recovers from a series of lockdowns, which were part of Beijing’s strict response to the coronavirus.

When the government finally brought an end to its strict zero-Covid policy late last year, many economists expected a strong recovery. It hasn’t arrived. Consumer spending, factory orders and exports are among many indicators showing signs that the recovery is losing steam.

A recent survey of manufacturing purchasing managers in China showed a second consecutive month of contraction for small companies. China’s small-enterprise purchasing managers index is now at 47.9; a reading below 50 shows business activity is slowing.

Scott Yang, a wine and tea seller in Wenzhou, a city in China’s wealthy Zhejiang province, said many local business owners he knows are laying off employees and trying to cut costs, in response to a drop in factory orders.

Small enterprises started to add jobs at the end of the first quarter, when there was still some optimism about a recovery. But a PMI subindex showed employment at small enterprises was 48.7 in May, meaning these companies are either cutting staff or not replacing those who leave.

Huang Yiwen, who sells furniture online in Foshan, in southern China’s Guangdong province, said his business has been hurt by the weak property market, since new-home buyers are a reliable source of demand for furniture makers.

Annual home sales fell to a six-year low in 2022, after a slump in the property sector that also led to debt defaults by some of China’s largest developers.

“It’s so hard to sell,” said Huang, regarding furniture.

Less than 40% of small and medium-size enterprises are operating at full capacity, which means producing all of the goods they can, according to the latest survey conducted by the China Association of Small and Medium Enterprises, which sends questionnaires to 3,000 SMEs in the country every month.

Economists warn that the problems facing small businesses can’t be isolated from the wider economy. Because small businesses are such a major source of employment, particularly in large cities, their struggles reflect—and could worsen—wider economic strains.

“If SMEs do not recover, it will be difficult for urban areas to create enough employment and income, which will have a significant impact on low- and middle-income families,” said Dan Wang, chief economist of Hang Seng Bank (China).

Chinese government officials are becoming uneasy about the economy and are planning a series of moves to stimulate growth, The Wall Street Journal recently reported. That could include billions of dollars of infrastructure spending and a loosening of rules in the property sector.

So far, Beijing’s attempts to prop up small businesses have focused mainly on making it easier for them to get funding. That has had limited success.

Since early 2020, Chinese regulators have pushed banks and other financial institutions to extend loans to small businesses that were hurt by the pandemic. In some parts of the country, local divisions of China’s central bank have sought to help small businesses by establishing teams to answer funding-related questions, as well as visiting factories and farms to assess their needs. The government has provided other targeted-relief measures such as tax exemptions and temporary rent reductions.

The total outstanding balance of loans to small and micro enterprises has been climbing, reaching the equivalent of $9 trillion at the end of March, according to data from China’s banking regulator.

Many small businesses in China don’t want to secure new financing unless it helps them clear previous debts. Yang, the wine seller, said that while financing is relatively cheap and easy to get, most local businesses he knows are borrowing only to stay afloat and not to expand.

Lufax, a Chinese internet-lending platform that caters mostly to small-business owners, said last month that about 5.7% of the total loans it facilitated were more than 30 days past due at the end of March. Its loan-delinquency rates, which are higher for unsecured loans, have risen for six consecutive quarters.

MYbank, an internet lender that serves small businesses, said in its latest annual report that the balance of its loans that were more than 30 days past due more than doubled last year. The company, an affiliate of the Chinese fintech giant Ant Group, said the impact of the pandemic and weak consumption last year caused many small- and micro-business owners to face continuous pressure.

Many commercial banks have given borrowers more time to repay their loans, extending their forbearance for small businesses to this year. Small businesses whose loans were due in the fourth quarter of 2022 will have until the end of this month to repay, according to a notice from the central bank and a group of regulators.

Chinese banks have allowed some small businesses to roll over their loans, but if these small businesses are unable to repay in the future, they will eventually have to be recognized as bad loans, said Jay Guo, a former banker and current dean at the Ningbo China Institute for Supply Chain Innovation.

“It only makes sense to extend loans if the economy rebounds and SMEs are able to sell their goods,” said Guo.

Ji, of the micro loan trade association, said that while some sectors such as tourism and catering have rebounded in the past few months, small businesses in manufacturing, trade and other industries are still under pressure as demand remains well below where it used to be.

Small businesses are falling victim to a vicious cycle that is affecting the wider economy, said Xiangrong Yu, chief China economist at Citigroup. The poor performance of some private companies is leading to a loss of confidence, and that low confidence is making it hard for those companies to do better, he said.

“Lack of confidence is both a symptom of the problem and the root cause of the problem,” said Yu.