Banks and SMEs need to forge a closer relationship to boost growth

Economic data points to a rough transition as the Chinese economy modernizes. Turmoil in the stock market and poorer-than-expected Purchasing Managers Index figures illustrate the challenges ahead.

But despite monetary loosening policies, optimism is in short supply. Clearly, further cuts in interest rates and the reserve requirement ratio, or RRR, the amount banks must hold in reserve, have been used to stimulate the economy.

In particular, the government appears to be targeting bank lending to China's army of small and medium-sized enterprises, or SMEs, and has even set up a 60 billion yuan ($9.4 billion) national fund. Still, two questions have to be asked: Are these bank-lending policies sufficient? And are China's SMEs equipped to take advantage of these new funding arrangements?