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Turning on the lending tap for small firms
Source: Xinhua |
January 6, 2010, Wednesday
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Print Edition
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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 2009.
Chen Naixing, an economist and director of the SME research Center at the CASS, said last Wednesday that most SMEs, especially smaller ones, were financially over-extended 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 about 30 percent of SMEs rated financing difficulties as the top barrier to development.
The crisis seems to fly in the face of the government's stated "relatively loose" monetary policy introduced to battle the economic downturn.
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 of 2009, 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 last 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.
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 last month.
Capital-deprived SMEs, mainly smaller ones, 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.
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 2009.
Chen Naixing, an economist and director of the SME research Center at the CASS, said last Wednesday that most SMEs, especially smaller ones, were financially over-extended 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 about 30 percent of SMEs rated financing difficulties as the top barrier to development.
The crisis seems to fly in the face of the government's stated "relatively loose" monetary policy introduced to battle the economic downturn.
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 of 2009, 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 last 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.
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 last month.
Capital-deprived SMEs, mainly smaller ones, 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.
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