Business / Economy

China battles for rags-to-riches stories

(Xinhua) Updated: 2014-04-09 10:18

BOAO -- China's industry heavyweights enjoy easy access to cheap bank loans, while smaller firms in dire need for fund usually find it expensive, if not impossible, to secure loans.

More than 90 percent of all Chinese firms are small and micro companies, who provide over 80 percent of jobs and around half of tax revenues.

Government incentives have encouraged banks to lend to small businesses, but it is still too early to be optimistic about more rags-to-riches stories , a report showed Tuesday.

"Give me your hand"

For a rather long period of time, the government has recognized the important functions of small firms in creating jobs, promoting the growth of entrepreneurship and driving ahead innovation.

In 2012, the State Council announced measures to support small and micro firms under pressure from rising costs and financing difficulties.Support includes incentives for commercial banks, and encouraging use of new technology, techniques and equipment.

Financial institutions have moved to help small firms by using information technology to lower costs, enhancing dynamic monitoring and streamlining loan approvals, according to a Boao Forum for Asia report on microfinance. Among some 50 million small and micro firms in China, around 12 million received some funds from commercial banks last year, up 2.4 percent from a year earlier.

Are things really looking up?

Is life really better for small businesses? For some, maybe.

The report illustrates how China's small companies are struggling to get affordable loans, with 48.9 percent saying they found loans more expensive in 2013 than in 2012. Another 34.7 percent said they experienced no changes in borrowing costs. Slowing growth spells stark challenges for profitability, with more than 60 percent seeing flat or dropping profits last year. Nearly half said their borrowing costs were more than 10 percent, much higher than the 6.55 percent rate for long-term loans set by the central bank.

It is an old story for small Chinese firms, as banks prefer to lend to larger companies, especially state-owned enterprises, to avoid risk.

Hong Qi, president of the China Minsheng Bank, a leader in microfinance, told the forum that the policy is yet to be fully effective, and financing small enterprises needs constant attention in both administrative guidance and market measures. He urged commercial banks to put forward more financial products for the smallest companies.

Zhu Hongren, spokesman for the Ministry of Industry and Information Technology, said that although policies were made to help small companies, some of them were not effectively implemented. Since August 2013, the government has exempted some small companies from value added tax and turnover tax, benefiting about 6 million businesses, but the scope of some central government policy is still far too narrow. Implementation should bring real benefits to small firms.

"The public service system is not fully fledged and inadequate publicity means some companies don't know about government support," Zhu added.

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