Small and medium-sized enterprises (SMEs) have played an important role in the development of China’

Wednesday, May 24, 2006

Small and medium-sized enterprises (SMEs) have played an important role in the development of China’s economy. As of the end of 2004, SMEs accounted for 58.5 percent of the country’s GDP (gross domestic product), 66 percent of patent rights and 74 percent of technology innovation, according to Li Jun, vice-president of the Export-Import Bank of China. They developed 82 percent of the country’s new products and made up 68.3 and 69 percent of total exports and imports respectively.

However, SMEs face a lot of barriers to further development, with financing being one of the biggest problems. The enterprises usually have limited capital, so they need capital from other sources, one of which is banks. But only 10 percent of the businesses have received bank credit, Li said recently at the Dialogue Between Fortune 500 and APEC SMEs in Qingdao City, East China.

Li said China Eximbank, a major State policy bank, has taken a series of measures to promote the development of SMEs since the end of 2005. These steps include providing more direct loans, establishing special financing platforms and giving more authority to local branches to approve SME loan applications. The lender has also implemented a pilot program in Anhui Province, East China, to grant loans to small businesses.

Another major lender, the Agricultural Bank of China, also vowed to give more financial support to SMEs. Zhang Yun, the bank’s vice-president, said they will increase effective input in SMEs, especially those of high quality.

Zhang said loans to SMEs will account for no less than 60 percent of the agricultural bank’s new loans beginning in 2006. He said the bank will also reduce their requirements and simplify loan-extending procedures based on the actual conditions of small and mid-sized companies in different regions and industries and at various levels.

Li from Eximbank called on SMEs, to step up credit construction so as to win more support from banks, citing dishonesty as a major element that greatly hinders enterprise growth.

Many bank executives at the forum echoed Li’s opinions, agreeing that bad credit systems are one of the main barriers to SME development. Among them were Li Jun, vice-president of Bank of Communications, and a Standard Chartered Bank executive responsible for China.

The executive from Chartered Bank, a foreign lender with 148 years of experience in China, said three factors impede banks from extending loans to SMEs. First, it is difficult for lenders to evaluate and control loan risks to SMEs due to the lack of information on businesses. Second, single loans to these companies are usually small, resulting in a low yield for banks. Third, banks are, more often than not, not confident of SMEs’ repayment abilities.

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