A new era
Banks attempt to solve financing difficulties of small enterprises
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.
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.
From top: Attendees at the forum; Lujiazui area