The problem of financing for small and micro enterprises remains prominent in spite of the Chinese Government's efforts over the past decade.

Recently, the People's Bank of China (PBC)—China's central bank—and the China Banking and Insurance Regulatory Commission set a goal of increasing the balance of loans to these businesses granted by the five major state-owned banks by over 30 percent year on year in 2019 and reducing their financing cost by 1 percentage point.

It's hard to know whether the goal can be reached. However, statistics from the PBC show that inclusive loans to small and micro enterprises increased by 19.8 percent year on year in the first quarter, a far cry from the 30-percent target for the year.

Statistics also show that financial institutions are more willing to issue loans to state-owned enterprises and large private enterprises than small businesses more in needs of funds. By the end of the first quarter, the balance of loans in renminbi issued by financial institutions in China was 142.11 trillion yuan ($20.99 trillion), of which only 10.05 trillion yuan ($1.48 trillion) was granted to small and micro enterprises. Inclusive loans granted by the five major state-owned banks to small and micro enterprises was only 1.99 trillion yuan ($293.9 billion).

Banks are not to blame. As commercial institutions, they have to take into consideration their own interests and the security of their funds when issuing loans. As most small businesses have underdeveloped management systems, banks worry about the risks of giving loans to them. Moreover, they have to spend extra energy and resources to track their funds after issuing loans, which increases their burden. State-owned enterprises and large private enterprises have better profit-making abilities and are more able to pay back loans.

Nevertheless, small and micro enterprises play an important role in China's social and economic development. According to statistics, China has over 20 million small and micro enterprises and over 60 million individually owned businesses, which create over 80 percent of the country's jobs and hold 70 percent of the country's patent rights. They are also responsible for over 60 percent of GDP and over 50 percent of the national tax revenue. Therefore it's mandatory for the Chinese Government to support the development of small and micro enterprises.

Although the government cannot intervene in the lending and borrowing activities between banks and enterprises, it can implement preferential policies to encourage banks to lend to small and micro enterprises. One possible solution is to promote loans issued based on the credit of enterprises.

Normally a property is needed when applying for loans. Small and micro enterprises can only get a limited amount of loans with their land and factory floors as security. Five years ago, some local financial institutions developed a product with the support of the Ministry of Finance and the PBC which allowed small and micro enterprises to secure loans based on their credit records.

The system is supposed to solve their financing difficulties. However as China's credit system is backward, there is little information available. As a result, the number of credit loans made no major breakthrough over the past few years.

In order to let credit loans play a bigger role, the credit system for enterprises needs improving urgently. In 2015 the National Development and Reform Commission established a national credit information sharing platform Creditchina.gov.cn. The website is connected to 44 ministerial-level departments, all provinces, autonomous regions, and municipalities in China and over 70 big data institutions, providing a basis for learning about enterprises' credit records.

In order to improve the platform, relevant departments should gather more credit information of small and micro enterprises in a timely manner, including their payments of water, electricity and gas fees, taxes, and social insurance for their employees. By doing this, financial institutions can more accurately grasp those enterprises' credit records to decide whether to issue their loans.

The credit loan system will enable small and micro enterprises with good credit records to enjoy more diversified financing channels, lower interest rates, and more convenient approval processes. It can not only help solve their financing difficulties but also promote the improvement of the overall credit level of the society.

Copyedited by Craig Crowther

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