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Smaller Companies to Get Help

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China will continue with its stimulus initiatives, trying next to encourage more private investment for smaller firms, after massive government-led infrastructure spending stoked a strong economic rebound in the first half of the year.

"More effort will be made to improve the credit structure and banking supervising system because small and medium enterprises (SMEs) still face great financial difficulties," Zhang Ping, director of the National Development and Reform Commission, told the Standing Committee of the National People's Congress yesterday.

In one of its recent reports, the top legislature also suggested special policy banks be set up for SMEs.

The government's 4-trillion-yuan stimulus package has significantly boosted infrastructure construction. However, a relative lack of private investment has now given rise to domestic worries about structural imbalances in the economy.

Bao Yujun, chairman of the Research Association on the Private Economy, told China Daily: "It's a long-time problem that the SMEs can't get loans, but the economic downturn has aggravated their financial plight."

The Banking Regulatory Commission's statistics shows SMEs had borrowed 13.7 trillion yuan by the end of June, representing an increase of 31.3 percent year-on-year.

But Bao said only a fraction of that money was lent to small firms.

"Some relatively bigger medium-sized enterprises have taken a lion's share of those loans," Bao said.

Hong Qiang, an owner of a paper products processing plant in Dongguan, Guangdong Province, told China Daily his factory had received more orders since June, but a lack of financing troubled him and he had been unable to get a loan from a large State bank.

The essential role of SMEs in China's economy and the difficulty they have had in getting financing has prompted experts to call for urgent banking reforms.

"We need to set up small and medium-sized banks (SMBs) to serve the SMEs," Bao said, pointing out that SMEs contribute more than 60 percent of the country's GDP growth, more than 50 percent of its tax revenue and more than 80 percent of urban jobs.

Yao Yang, a researcher at Peking University told China Daily SMBs would be more likely to grant SMEs loans because SMBs have smaller but more flexible operations.

"This would stimulate SMEs' growth and eventually fuel domestic investment and increase job opportunities," Yao said. "China's banking industry has already opened its door to foreign banks. It's unfair to set up so many barriers for domestic private investors."

The Chinese government has already started helping SMEs and Premier Wen Jiabao explained the government's policies during an inspection tour in East China's Zhejiang Province this week.

Last Wednesday, a State Council executive meeting chaired by the premier said the government would speed up help for small companies with initiatives, including the establishment of the Growth Enterprise Market, the country's first Nasdaq-style market.

(China Daily August 26, 2009)