China Gropes for Solutions to SME Financing Difficulties
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China's small and medium-sized enterprises (SMEs) are facing an alarming credit and economic crisis that, by one estimate, has driven at least 20 percent of them to the wall since the global financial crisis began.
Officially the numbers are relatively low, and Minister of Industry and Information Technology (MIIT) Li Yizhong said in March that 7.5 percent of SMEs went bankrupt as a result of the global economic downturn in 2008.
However, a report by the Chinese Academy of Social Sciences (CASS) said 20 percent of SMEs had crashed and another 20 percent went to the brink of bankruptcy during the climax of the global financial crisis from October 2008 to March this year.
"According to my research, to date, most of the 20 percent on the brink of failure have been revived thanks to the recovering economy," said Chen Naixing, an economist and director of the SME research Center at the CASS, on Wednesday.
Chen, also deputy executive director of the China (Hainan) Reform and Development Research Institute, said most SMEs, especially small businesses, were financially overstretched by falling orders at home and abroad.
The impact of the economic downturn on SMEs has been compounded as they were squeezed out of the massive credit flow unleashed by China's banks.
Yin Zhongqing, deputy head of the Financial and Economic Affairs Committee of the National People's Congress (NPC), said earlier this month that about 30 percent of SMEs rated financing difficulties as the top barrier to development.
Three quarters of SMEs in Henan Province and 80 percent in Jiangsu Province faced financing difficulties, said a report of a research tour by the Committee in five provinces and two municipalities in October.
The crisis seems to fly in the face of the government's "relatively loose" monetary policy introduced to battle the economic downturn.
However, the explosion in bank credit has been weighted toward large, state-owned companies, and the small firms' share has been shrinking, despite their vulnerability in the economic crisis.
According to the People's Bank of China, the central bank, new loans to SMEs totaled 3.08 trillion yuan (US$451 billion) in the first nine months, accounting for 45 percent of the 6.83 trillion yuan corporate loans.
However, in 2008, SMEs accounted for 51.9 percent of corporate loans, said governor of the central bank Zhou Xiaochuan in March.
And even their shrinking share of loans is skewed by a selective lending approach that puts most of the loans in the coffers of medium-sized enterprises, said Chen Yongjie, a researcher with the All-China Federation of Industry and Commerce,earlier this month.
Chen said China had more than 10.23 million SMEs, accounting for 99 percent of registered enterprises, and medium-sized firms made up less than 1 percent of SMEs, but small enterprises got only 40 percent of loans to SMEs.
According to standards set by the National Bureau of Statistics, SMEs are enterprises with annual business revenue below 300 million yuan. Firms with revenues of less than 30 million yuan are considered small.
Small companies accounted for less than 22.4 percent of total corporate loans in the first three quarters, said a report by minister Li Yizhong to the NPC on December 24.
Chen Naixing, of the CASS, said Wednesday he did not know for sure how much credit had gone to SMEs, but "it is impossible that loans to small enterprises would account for more than 10 percent of the total corporate loans."
Loans to small firms accounted for just 8.5 percent of the 7.37trillion yuan in new bank loans in the first half, said Gu Shengzu, an economist and vice chairman of the China National Democratic Construction Association, one of China's democratic parties, in a discussion of the NPC on Tuesday.
However, capital-deprived SMEs, mainly small businesses, contributed 60 percent of GDP, 50 percent of tax revenues and 80 percent of jobs in urban areas, according to the NPC report.
"Less than 20 percent of small businesses have access to bank loans," said Yin Zhongqing, deputy director of the Financial and Economic Affairs Committee of the NPC. "This is unreasonable given their contribution to the economy and their pressing need for funding."
Zheng Xin, an official in charge of SMEs affairs with the MIIT, said banks regarded loans to SMEs as an inconvenience.
"Loans to small businesses are characterized by tiny sums, frequent loan applications, complex procedures and, above all, little profit," said Zhen.
The government should encourage local authorities to subsidize and offer tax exemptions to institutions that lend more to small companies, said Wu Xiaoling, a former vice governor of the central bank, earlier this month on Xinhua's website forum.
It would also help make small businesses more transparent, as bank credit officers were wary of small firms with little documentation and dodgy accounts, said Zheng.
Higher non-performing loans rates also scared them. Non-performing loans for SMEs stood at 4.05 percent, much higher than the 1.66 percent for lending overall, according to the China Banking Regulatory Commission and the central bank.
The central and local governments would work with companies to fund and set up credit-guarantee institutions, and expand the scale of short-term bills and bundled bonds issued by enterprises, said a statement of an executive meeting of the State Council in August.
The government would also quicken the formation of a 'development fund', guiding private funds to support growth of SMEs, said the statement.
(Xinhua News Agency December 30, 2009)