A new era

Banks at­tempt to solve fi­nanc­ing dif­fi­cul­ties of small en­ter­prises

Global Times – Metro Shanghai - - FRONT PAGE - By Chen Shasha

Small and mi­cro en­ter­prises in China will gain more sup­port to sur­vive in the com­pet­i­tive mar­ket. Yi Gang, gover­nor of the Peo­ple’s Bank of China, said in a speech at the re­cent 10th Lu­ji­azui Fo­rum that the bank will make fur­ther steps to solve fi­nanc­ing dif­fi­cul­ties of small and mi­cro en­ter­prises, hop­ing to sup­port the devel­op­ment of such en­ter­prises in a fi­nan­cial as­pect.

Yi ex­plained that sup­port from mul­ti­ple par­ties is re­quired. He said that the Peo­ple’s Bank of China should en­cour­age com­mer­cial banks and other fi­nan­cial in­sti­tu­tions via mon­e­tary poli­cies to pro­vide ser­vice to small and mi­cro en­ter­prises.

The su­per­vi­sory au­thor­ity must fully con­sider risk pre­mi­ums of such en­ter­prises and im­ple­ment su­per­vi­sion in dif­fer­en­ti­ated ways. More­over, the gov­ern­ment must of­fer such en­ter­prises tax in­cen­tives, Yi said, adding that a com­pre­hen­sive pol­icy to im­prove loan ser­vices to these com­pa­nies is un­der dis­cus­sion.

“It is a world-wide phe­nom­e­non that small and mi­cro en­ter­prises have dif­fi­culty ob­tain­ing loans from banks, as loan­ing re­quires the en­ter­prises to mort­gage their as­sets. How­ever, such en­ter­prises, small as they are, usu­ally have noth­ing to mort­gage,” Dong Dengxin, di­rec­tor of the Fi­nan­cial Se­cu­ri­ties In­sti­tute at the Wuhan Univer­sity of Sci­ence and Tech­nol­ogy, told the Global Times.

In­for­ma­tion asym­me­try

Dong said that there is still a great po­ten­tial to find pri­vate cap­i­tal for small and mi­cro com­pa­nies and the gov­ern­ment needs to ad­dress in­for­ma­tion asym­me­try and en­sure a bet­ter in­sti­tu­tional and in­vest­ment en­vi­ron­ment.

More­over, he sug­gests that the gov­ern­ment should pro­vide such com­pa­nies with pro­fes­sional and sound so­cial ser­vice, con­sid­er­ing that they usu­ally do not have pro­fes­sional tal­ents or re­search and devel­op­ment.

Ye Hang, a pro­fes­sor at the School of Eco­nomics of Zhe­jiang Univer­sity, said that sup­port­ing small and mi­cro en­ter­prises has been a fre­quently dis­cussed topic in re­cent years. To re­al­ize this, the au­thor­i­ties need to make and roll out a de­tailed and sys­tem­atic mea­sure­ment.

Ac­cord­ing to Ye, the op­er­a­tional cost of com­mer­cial banks is rel­a­tively high to is­sue loans to small and mi­cro com­pa­nies, as their loan amount is much lower than big com­pa­nies.

“Con­sid­er­ing the cost and the ben­e­fit, they are not will­ing to lend money to those com­pa­nies,” Ye said, adding that the risk con­trol is also a big chal­lenge for the com­mer­cial banks as these com­pa­nies are vul­ner­a­ble to com­pli­cated busi­ness en­vi­ron­ment.

With­out spe­cial sup­port from the au­thor­i­ties, many en­ter­prises turn to pri­vate credit which will raise the op­er­a­tional costs of such en­ter­prises and pos­si­bly also fi­nan­cial dis­putes.

More­over, Ye be­lieves a more trans­par­ent, mar­ket-based and com­pet­i­tive credit sys­tem is to be built to im­prove the fi­nan­cial en­vi­ron­ment in China.

Small and mi­cro en­ter­prises play an im­por­tant role in China’s eco­nomic devel­op­ment. Ac­cord­ing to Yi, China now boasts more than 20 mil­lion small and mi­cro en­ter­prises and over 60 mil­lion pri­vately or in­di­vid­u­ally owned busi­nesses, ac­count­ing for 90 per­cent of the to­tal num­ber in the ma­jor mar­ket.

About 80 per­cent of China’s em­ploy­ment, 70 per­cent of the in­ven­tion and patents, 60 per­cent of the GDP and 50 per­cent of tax in­come are con­trib­uted by such busi­nesses.

Pho­tos: VCG

From top: At­ten­dees at the fo­rum; Lu­ji­azui area

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