Financing services to help small businesses grow
Move aims to boost inclusive finance and promote agriculture; corporate sector to aid consolidation of credit system, rebalance the economy
Limited financing has long been viewed as an obstacle for small businesses and business startups. Now, an upcoming policy from the State Council, China’s Cabinet, is expected to help such companies overcome the hurdle.
It was decided at the State Council’ s executive meeting, presided over by Premier Li Keqiang on May 3, that major commercial banks in China are to set up “inclusive finance” units by the end of 2017 to support small and microbusinesses as well as startups. The move will also help farmers under poverty alleviation efforts, according to a statement released after the meeting.
The statement also announced that banks should allow “a reasonably higher non-performing loan ratio” for lending to small and micro-sized enterprises, the agriculture sector and poverty alleviation projects.
The term “inclusive finance”, first introduced by the United Nations in 2005, refers to effective financial services provided for all social classes and groups.
Establishing “inclusive finance” units in major commercial banks was part of this year’s Government Work Report delivered by the premier in March.
He stressed during the May 3 meeting that developing inclusive finance is hugely important to boo sting employment and upgrading the economy, and more financial services should be offered to boost agriculture as well as small and micro-businesses to enhance the real economy.
Tian Xuan, assistant dean and professor of finance at Tsinghua University’s PBC School of Finance, who specializes in corporate finance and financial incentives, believes the move will contribute to a more balanced growth of the financing system.
“Financing in China is developing unevenly, with one side rich in financing resources and the other severely lacking it,” Tian pointed out. “This leads to small and medium-sized enterprises, a group with the best growth vitality and innovation in China, severely lacking financial resources, thus limiting their growth.”
He said that such an uneven development mode, in the long run, will harm the economy, and setting up inclusive financing units is a positive measure to correct the current imbalance.
Limited and costly financing was once blamed for China’s weak momentum in private investment growth in 2016. Private investment growth dropped to 2.8 percent for the first half of 2016, a sharp decline compared with the previous year, triggering worldwide concern for China’s future market vitality.
A review guided by the State Council last June noted that high financing costs as well as limited access to financing were highlighted as a major reason for falling investment.
Tian pointed out major reasons for the reluctance of banks to lend to small businesses, farmers and individuals trapped in poverty.
“Currently, the credit systems for these groups is comparatively limited compared with well-established or State-owned firms, leading to inadequate reference guidelines for banks to understand the company’ s profile, and because of this they were unwilling to lend ,” he said.
Although this has been widely recognized, he said it became more extreme as the country’s economic situation faced downward pressure.
Tian stressed that to establish a comprehensive, stable credit system as well as improving related policies and regulations will be the key to ensuring financial resources for these vulnerable groups.
“A comprehensive credit system not only helps these groups to build up their company profiles’’, but will also help banks to streamline lending procedures, he said.
The ultimate goal for inclusive finance is to help create greater value.
“Therefore, inclusive finance helps with the country’s overall development, and building the market toward a level playing field,” he said.
Financing access for small and medium-sized enterprises remains a problem worldwide, yet it is particularly urgent in China as the country is in the process of economic transition from focusing on export and investment to consumption and services, Tian said.
Bei Duoguang, head of the Renmin University of China’s Inclusive Finance Institute, while applauding the new policy, said having inclusive financing units in commercial banks in China will help inclusive financing services become more independent. But he also said the development of smaller businesses requires more diverse efforts besides bank loans.
“Financing innovation, such as developing a multilevel capital market, is also key to their development, while a more comprehensive bankruptcy system for enterprises will also be necessary,” he said.
Financing in China is developing unevenly, with one side rich in financing resources and the other severely lacking it. Tian Xuan, assistant dean and professor of finance at Tsinghua University’s PBC School of Finance