Small firms need more fi­nan­cial aid

China Daily European Weekly - - Comment - WU JIANGANG

Gov­ern­ment ef­forts are needed to pro­vide pri­vate com­pa­nies with ways to ac­cess startup fund­ing

China’s pri­vate com­pa­nies have made a great con­tri­bu­tion to its eco­nomic de­vel­op­ment. They have played an im­por­tant role in job cre­ation, tech­no­log­i­cal in­no­va­tion, the coun­try’s tax in­come and ex­pan­sion of over­seas mar­kets.

By the end of 2017, China had more than 27 mil­lion pri­vate com­pa­nies, and more than 65 mil­lion in­di­vid­u­ally owned busi­nesses. They have pro­vided more than half of China’s tax in­come and ac­count for more than 60 per­cent of the coun­try’s GDP. They also have made more than 70 per­cent of China’s tech­no­log­i­cal in­no­va­tions and of­fer more than 80 per­cent of jobs in ur­ban ar­eas.

Re­search shows that small and medium-sized en­ter­prises are ex­tremely im­por­tant for the health of the econ­omy, es­pe­cially for in­no­va­tion and em­ploy­ment. How­ever, most uni­corn com­pa­nies are started from very small ones. Small com­pa­nies are nu­mer­ous, have a flex­i­ble busi­ness model and are pas­sion­ate about cre­at­ing and sen­si­tive in em­brac­ing new de­mands. Many coun­tries set up spe­cial­ized funds to of­fer fi­nan­cial aid to small com­pa­nies. Al­though China has ad­vo­cated in­no­va­tion and en­trepreneur­ship, small com­pa­nies have dif­fi­culty get­ting fi­nan­cial aid.

How­ever, in sec­tors that con­cern the life­line of the na­tional econ­omy, Stated-owned com­pa­nies still dom­i­nate. Since the ser­vice in­dus­try is more tech­nol­ogy-in­ten­sive, small com­pa­nies should have more op­por­tu­ni­ties, but in many ser­vice sec­tors, such as fi­nanc­ing, telecom­mu­ni­ca­tions, health­care and ed­u­ca­tion, there are still some poli­cies that are re­strict­ing the en­trance of pri­vate com­pa­nies. This is why many pri­vate com­pa­nies are mainly in the low-end mar­ket, gain­ing a rel­a­tively lower profit mar­gin.

Since pri­vate com­pa­nies are stuck at the en­try thresh­old, have dif­fi­culty get­ting credit en­dorse­ment from the gov­ern­ment, lack re­sources and ex­pe­ri­ence more dif­fi­culty in get­ting ser­vice and sup­port from the gov­ern­ment, they are less able to deal with the chang­ing mar­ket en­vi­ron­ment. So as the global eco­nomic sit­u­a­tion changes, and China un­der­goes eco­nomic trans­for­ma­tion, it is in­evitable that China’s pri­vate com­pa­nies will have dif­fi­cul­ties. It is no won­der, then, that trade ten­sion be­tween China and the United States can be a dev­as­tat­ing blow to the con­fi­dence of pri­vate com­pa­nies re­gard­ing the fu­ture eco­nomic sit­u­a­tion.

How­ever, if pri­vate com­pa­nies can­not sur­vive, this will be a big blow to the whole eco­nomic sit­u­a­tion. For ex­am­ple, if many pri­vate com­pa­nies close, this will in­crease the un­em­ploy­ment rate and af­fect so­cial se­cu­rity.

China’s econ­omy might cur­rently face risks that could cause a chain re­ac­tion, which is why we need to re­store a sense of con­fi­dence in the pri­vate sec­tor. These risks in­clude a real es­tate bub­ble, a high debt ra­tio of lo­cal gov­ern­ments and high de­pen­dence on the ex­port econ­omy.

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