Zhejiang moving to ease financial pressures for firms

Updated: 2012-01-31 10:38

By Xie Yu (China Daily)

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HANGZHOU - Zhejiang province will strive to ease private companies' financing pressures and channel private capital into the real economy instead of speculation, said Xia Baolong, the provincial governor, on Monday.

"The province has proposed a plan to the State Council about a trial reform involving financing in Wenzhou, to solve the financing problem of small companies," Xia said, adding that the provincial government is trying every method to help small companies get more funding.

Media reports have said that the trial reform might include an increase in the number of small-loan companies and the establishment of stock-holding village banks, which would be jointly established by a number of companies.

Amid a weak global economy, China's small and medium-sized enterprises (SMEs), especially in Zhejiang, home to many successful small companies, have struggled over the past year.

Overseas markets shrank, raw material and labor costs rose and banks were ordered to tighten credit to rein in inflation.

Many business owners in Zhejiang, particularly the entrepreneurial city of Wenzhou, fled and several even committed suicide over debt problems as banks cut lending late last year.

Xia said that bank branches in the province had applied to their head offices for permission to make supplementary loans of more than 40 billion yuan ($6.3 billion) to SMEs during the fourth quarter of 2011, but there was still a huge gap between credit supply and demand for the small business sector.

Major banks favor big businesses, especially State-owned ones, to reduce their risks and obtain a secure return on their capital. It is more difficult for SMEs, especially private businesses and individuals, to borrow from banks. So they turn to the private financing market.

"There are more than 100 small-loan companies in Zhejiang, with capital of more than 30 billion yuan," said Din Minzhe, director of the provincial financial office.

But he emphasized that private lending should be regulated, especially since there are some informal guaranty companies in the market.

Zhejiang is also exploring more investment options for private capital.

"In recent years, private capital moved into speculative ventures like real estate. We should induce this money to return to the real economy to avoid financial risk," Xia said.

"Investment in real estate was actually very profitable, but now it seems there are dangerous bubbles. Private capital is now interested in other fields, such as equity investment," Din said.

Din said the government aimed to build two comprehensive platforms that would solve the financing and investing problems of private companies.

"We will offer all kinds of financial services including investment consulting, public offerings, private placements and corporate bond issues on this platform, to solve problems in funding and investment. But it will take at least five years to build the system," he said.