Opinion / Op-Ed Contributors

Change in perception required

By Deng Yuwen (China Daily) Updated: 2011-10-20 08:06

Small and medium-sized enterprises need financial credit and broader support to drive the economy and create jobs

For some time now, the difficulties facing small and medium-sized enterprises (SMEs), especially small and micro ones, have aroused the attention of the nation's authorities. The State Council has pledged stronger financial and fiscal support to help with the development of cash-strapped small and micro-sized enterprises, clearly increased the tolerance for the non-performing loan ratios of small enterprises and extended the scope and expiration day of the policy reducing half of the business tax to the end of 2015, which is considered a direct favor for SMEs currently suffering economic difficulties.

It is normal for enterprises to encounter challenges in survival and development, but is significant that most SMEs have faced greater difficulties recently than during the financial crisis in 2008. SMEs seem to be struggling with the high inflation caused by the previous over-easing monetary policy, which has resulted in a compression of the loan scale and higher interest rates. This has made financing difficult for SMEs.

At the micro level, SMEs still need to improve their credibility and comprehensive quality. Meanwhile, there are too many opportunities for speculative profits of various kinds in society, which leads to a lack of resources and impetus promoting long-term start-up and innovation.

At the macro level, finance has failed to provide enough support for SMEs, especially as there is a lack of professional small and medium-sized financial institutions compatible with SMEs, such as policy banks offering financing service to SMEs. In addition, SMEs' channels for financing through issuing stocks and bonds are not open enough.

During the global financial crisis in 2009, the State Council issued a series of six policies and measures to support SMEs, but their implementation failed to make any substantial improvements in SMEs' business environment and their heavy tax burden and financing difficulties remained.

The problems then are with SMEs themselves and the system. These problems have not been solved during the past decade and have been further aggravated by the tight fiscal policy.

So measures treating not only the symptoms but also the root causes should be taken to tackle SMEs' difficulties in accessing financing. As was addressed at executive meetings of the State Council, banks should increase credit support for small and micro businesses, especially those complying with national policy on industry and environmental protection and the real economy. Also, the government should make more efforts to guide and help SMEs at the institutional level.

It is known to all that SMEs have played an indispensable role in increasing jobs, promoting economic growth, scientific and technological innovation, as well as social stability and harmony.

Currently there are over 100 million SMEs in China, 99 percent of the total number of enterprises. They have provided major job opportunities, created most of the local GDP and become the major support and vigor for China's economic and social development. But the overall influence of SMEs at the macro level appears to be barely noticeable to local governors. The fundamental problem is that local authorities have never developed a correct view of SMEs.

What local authorities want is political achievements and taxation of which big enterprises, both State and private, are the major sources. So it is no surprise that local officials offer preferential policies to big enterprises.

It will be impossible to introduce measures to help improve the business environment for SMEs without a change in perception. So it is important that the society emphasizes the significant role SMEs play in the country's development.

With the increasing cost of labor and harsher restrictions on resources, SMEs need the central and local governments to create a nurturing business environment and provide easier access to financing.

The author is a senior editor with the Study Times.

(China Daily 10/20/2011 page8)

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