The Impact of Policy Uncertainty on the Credit Risk of SMEs in China

In recent years, the intensification of global policy uncertainty has presented significant challenges to enterprise operations. Small and medium-sized enterprises (SMEs) in China which was characterized by limited financial capacity and weak risk resilience, are particularly vulnerable to such uncertainty. This paper systematically reviews existing literature and explores how uncertainty in monetary, fiscal, and trade policies affects SMEs by raising financing costs, delaying investment decisions, and disrupting operational strategies. It finds that traditional credit risk assessment models, which often rely solely on static financial indicators, fail to considerate the dynamic impact of external policy shocks— particularly in volatile economic environments. As a result, they tend to underestimate credit risk during periods of heightened uncertainty. Given the growing exposure of SMEs to macro-level policy changes, this paper advocates for the development of a more adaptive, policy-sensitive credit risk evaluation framework. Such a model should incorporate external policy indicators to improve early warning capabilities, better capture real-time risks, and support decision-making by financial institutions, regulators, and SMEs themselves. This research contributes to a more comprehensive understanding of credit risk in uncertain environments and offers a theoretical basis for enhancing financial resilience among SMEs.