e-magazine
The Hot Zone
China's newly announced air defense identification zone over the East China Sea aims to shore up national security
Current Issue
· Table of Contents
· Editor's Desk
· Previous Issues
· Subscribe to Mag
Subscribe Now >>
Expert's View
World
Nation
Business
Finance
Market Watch
Legal-Ease
North American Report
Forum
Government Documents
Expat's Eye
Health
Science/Technology
Lifestyle
Books
Movies
Backgrounders
Special
Photo Gallery
Blogs
Reader's Service
Learning with
'Beijing Review'
E-mail us
RSS Feeds
PDF Edition
Web-magazine
Reader's Letters
Make Beijing Review your homepage
Hot Links

cheap eyeglasses
Market Avenue
eBeijing

Related
Special
UPDATED: August 14, 2009 NO. 33 AUGUST 20, 2009
Rethinking SMEs' Financing Predicament
Should all SMEs be financed while the banks take the blame?
Share

 

A HELPING HAND: Jiangxi Lantianyu Textile Co., a private factory, runs smoothly thanks to loans provided by the local rural bank catering to SMEs (SONG ZHENPING) 

A wave of sharp criticism has been aimed at the banks concerning the difficulties for China's small and medium-sized enterprises (SMEs) in acquiring financing, while the Central Government began to strongly urge banks to provide loans for SMEs. Should all SMEs be financed while the banks take the blame? Is there any other viable way to pull SMEs out of the financial predicament?

Qiu Haiping, a professor with the School of Economics at Renmin University of China, recently examined the issue and offered insights in the Guangming Daily. Edited excerpts follow:

Currently, SMEs' financing difficulties have become a major problem hovering over the Chinese economy—a problem that has aroused heated discussion among the government at various levels. From my point of view, we should approach this question in a comprehensive and objective manner and seek viable measures rather than just pointing our fingers at the banks' ignorance toward SMEs.

Capital is the foremost driving force in enterprise development. Under the market economy, it is natural that enterprises will encounter a capital shortage or have a capital oversupply during a certain period of time, which constitutes the origin of credit. In this sense, it is reasonable for some enterprises to fail financially according to the market rules. What's more, in the market economy, some enterprises being left out of the competition is unavoidable and reasonable. We should accept the idea that not all financing demands should be met. In fact, the market-based mechanism exerts its power where an enterprise cannot adapt to or catch up with social development.

SMEs' financing difficulties are not a problem unique to China, but a worldwide phenomenon. SMEs are small scale in terms of capital, employee and annual output. In all the countries that have classifying criteria for enterprises, SMEs are defined according to the indexes above. No matter whether financing is direct or indirect, all economic credit relationships are based on economic power. Owing to its small size and scale, SMEs' solvency and credit standings are low. For various lenders, such as the government, investors, banks, enterprises and individuals, the loans provided for SMEs denote higher risks. That is why commercial banks prefer state-own enterprises (SOEs) to SMEs when issuing loans.

China's reform and opening-up policy adopted three decades ago allowed SMEs to grow rapidly. Although the government has taken a slew of measures to promote the development of SMEs, financing difficulties still prevail as one of the biggest obstacles preventing them from developing healthily. As some surveys have indicated, among the 30 million SMEs, more than 70 percent have been plagued by capital shortages. Even though bank lending has surged dramatically this year, and the total loans for SMEs have increased, the proportion of loans granted to SMEs of the total amount of loans remained the same or even decreased in some regions. The financial disadvantage of SMEs reflected problems existing in China's economic system, or to put it more specifically, financial system.

China's SMEs are, for the most part, privately owned. But SOEs played a more dominant role. For this reason, the large-scale SOEs enjoy more access to resources, especially more favorable policies, than SMEs. However, the strength of SMEs can't be ignored. Facts show that 99 percent of the country's enterprises are SMEs, which contribute approximately 60 percent to the GDP, 45 percent to overall taxes collected and 75 percent to employment. We shall not be able to achieve a sustainable development of the national economy without discarding the old bias against SMEs.

1   2   Next  



 
Top Story
-Protecting Ocean Rights
-Partners in Defense
-Fighting HIV+'s Stigma
-HIV: Privacy VS. Protection
-Setting the Tone
Most Popular
 
About BEIJINGREVIEW | About beijingreview.com | Rss Feeds | Contact us | Advertising | Subscribe & Service | Make Beijing Review your homepage
Copyright Beijing Review All right reserved