Analysis of Internal Causes of Losses in Mainland China’s Small and Medium-sized Enterprises and Governance Countermeasures

Abstract

Since China’s reform and opening-up, the market economy has developed rapidly. Driven by diversified and individualized social demand, enterprises, as the fundamental units of economic activity, play a critical role in improving the overall quality of the national economy. Particularly, the vast number of small and medium-sized enterprises (SMEs) in mainland China accounts for the overwhelming majority of total enterprises, making their sound development strategically significant. In recent years, many SMEs have frequently fallen into financial losses. Beyond external factors such as the macroeconomic environment and policy systems, the deeper causes often stem from internal deficiencies—such as imperfect governance structures, outdated management concepts, and weak institutional enforcement. Focusing on selected SMEs in Chongqing as case studies, this paper systematically analyzes the key internal factors restricting profitability, covering five dimensions: financing, investment, operations, profit distribution, and management culture. Based on these findings, it proposes practical governance measures. The study aims to provide theoretical reference and practical guidance to help SMEs clarify their development strategies, enhance management capacity, and strengthen risk resilience.