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Tuesday, April 16, 2019, 11:01
Financial lifeline boost for SMEs
By Xu Wei
Tuesday, April 16, 2019, 11:01 By Xu Wei

Initiative will allow enterprises to overcome cash shortages and enhance their development


A plan rolled out by the central authorities to create a level playing field and boost financing channels for small and medium-sized enterprises will inject fresh impetus for the growth of SMEs, officials and experts said.

The guideline on promoting the healthy development of SMEs, jointly released by the general offices of the Communist Party of China Central Committee and the State Council on April 7, highlighted the importance of creating a more enabling environment and solving the difficulties faced by the SMEs in financing procedures.

Wang Jiangping, vice-minister of industry and information technology, said the guideline has provided more targeted, concrete and effective measures to tackle the growing downward pressure faced by SMEs.

The new policy will blaze new space for the financing of private enterprises and SMEs

Deng Haiqing, economist with wallstreetcn.com, an online business and financial information platform

The SME sector in China, which accounts for more than 90 percent of the total number of businesses, has contributed to over 50 percent of the country's tax revenues, over 60 percent of GDP, over 70 percent of innovations in technology and over 80 percent of urban employment, according to the State Council.

"The guideline will play a significant role to boost the morale for the development of SMEs and promote their healthy and sustainable development," Wang told a news briefing on Friday.

The guideline called for more attention to the problems impeding further growth of SMEs, such as rising costs, financing difficulties and inadequate innovation capability.

To solve these problems, the country will improve the business environment for SMEs by further broadening market access, simplifying administrative procedures and strengthening market supervision and regulation, according to the guideline.

A variety of financial policy tools, including targeted required reserve ratio cuts and the use of small and medium-sized enterprise loans as collateral for medium-term lending facilities granted by the central bank, will be employed to make it easier and cheaper for businesses to access credit through subsidies and bank loans.

More favorable policies in financial and tax policies, including exemptions for interest received from value added tax, tax breaks for small firms and startups, a lower social security contribution ratio and an increase in government procurement, will also be made available to SMEs, the guideline said.

In order to create a level playing field for SMEs, Wang said the authority will introduce a negative list mechanism for market access to remove unreasonable barriers and restrictions to help SMEs.

Deng Haiqing, an economist with wallstreetcn.com, a business and financial information platform, said the guideline will enable more financing resources to flow to SOEs.

"Currently, too much financing resources are being concentrated on State-owned enterprises. The new policy will blaze new space for the financing of private enterprises and SMEs," he said.

However, Deng said it is also important for financial institutions to prevent the accumulation of new credit risks as small and micro-businesses are faced with higher risks of operation failures and lower capacities in risk prevention.

According to the guideline, SMEs will also receive support to use the capital market for financing, with the initial public offerings for such businesses set to be expedited. SMEs will also be incentivized to become listed in the National Equities Exchange and Quotations, better known as the New Third Board.

The guideline also called for accelerated efforts to give play to the national financing guarantee fund, as well as fee reductions during the financing process of SMEs.

Zeng Gang, a researcher on the banking sector with the Chinese Academy of Social Sciences, said the lack of willingness for SMEs to take loans from the banks is another pressing problem.

"Many SMEs dare not lend from banks because of their low profits," he said in an interview with Financial News, adding that it is important to adopt measures to enlarge the profit margins for businesses and boost their confidence to expand investment.

Wang, the vice-minister, said the authority will also encourage more social capital to invest in the equities of SMEs through the national fund for the development of SMEs, which has totaled 19.5 billion yuan (US$2.9 billion) so far.

"We will work to ensure the fund can extend more support to the development of SMEs in their seed and startup stages," he said.


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