SMEs 'need more help' to secure funding

(China Daily)
Updated: 2010-11-10 15:16
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BEIJING - The increasing financial needs of small and medium-sized enterprises (SMEs) in China mean that financial institutions must be more innovative to support their development, a survey showed.

Of the 2,300 SMEs surveyed, only 59 percent raised money to support growth by using financial institutions, and 86 percent of capital raised was obtained from commercial bank loans, reported the Chinese Entrepreneur Group Survey White Paper, jointly released by Standard Chartered Bank China and the 21st Century Business Herald on Tuesday.

The survey showed that most of the bank loans had short-term maturities, and 75 percent had maturities of less than a year - not long enough to satisfy the long-term needs of SMEs.

In order to obtain lower credit rates from banks, many Chinese SMEs pledged commercial and residential real estate, as well as inventories, as collateral, the report said.

In addition, 4.7 percent of the SMEs surveyed privately borrowed money from the inter-company financing system, 4 percent from friends and relatives, and 1.5 percent from pawn shops. It is hard for many SMEs, especially the ones lack sufficient pledges, to pass the audit before obtain loans from commercial banks, which become the key problem for the SMEs to grow fast, said Tang Xuemei, expert in statistics and market research house Data 100 Research.

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Chinese SMEs will face more challenges in the next five years, as labor and material costs rise, said Huang Guitian, deputy head of the Economics Department of Peking University. "It requires more financial institutions to support SMEs to raise money in the capital market by innovative financial products," he said.

Chinese SMEs play an important role in cross-border trades, but 35 percent of the surveyed companies had relatively high exchange rate risks. However, only 41 percent of them take financial instruments to reduce risks, said the report.

By taking advantage of global networks, international banks can help SMEs reduce the currency exchange risks and develop business by customized services, such as yuan-denominated settlements in cross-border trades, said Betty Ku, the regional head of China and North East Asia SME banking at Standard Chartered Plc. Standard Chartered was the first international bank to provide professional services to Chinese SMEs in 2003, and supporting them will be one of its key business strategies in the domestic market, said the bank.

SMEs account for 95 percent of the total number of Chinese enterprises, and contributed more than 30 percent of the country's GDP last year, according to a report from the International Finance Corporation, a member of the World Bank Group.