Guideline aims to strengthen SMEs

Measures include improving IPR protection and financing channels

China recently rolled out new measures to improve the competitiveness of its small and medium-sized enterprises, or SMEs, by offering stronger intellectual rights protection and more financing channels.

Experts believe the measures are expected to help businesses realize their potential for innovation and boost their vitality, enabling them to better contribute to national high-quality development efforts.

On Nov 23, the State Council, China's Cabinet, issued a guideline on enhancing the competitiveness of SMEs. It included policies aimed at fostering growth, ranging from stronger credit support, diversified financing channels and strengthened intellectual property rights protection.

It also pledged to offer SMEs an environment that better supports innovation. More funding will be steered toward those developing specialized, sophisticated techniques and unique products to improve their ability to innovate and raise their level of professionalism.

The guideline also urged central government platforms to better support SMEs. In particular, the State manufacturing innovation center will play a larger role in bolstering SMEs and better protect them as they seek to market their products.

Economists said that industrial innovation is key as the Chinese government focuses on high-quality economic growth.

Tian Xuan, associate dean and a professor at Tsinghua University's PBC School of Finance, said that SMEs have been the primary driving force for innovation and national development.

"In recent years in particular, SMEs in China have entered a stage of robust growth. They have played a critical role in the country's supply side structural reform and industrial transition," he said.

"Meanwhile, they are also the key driving force in innovation. The strengthened ability to innovate will help SMEs transform the economy into a model of intensive growth."

Data released by the Ministry of Industry and Information Technology in November showed that there are 4,762 SMEs that have developed specialized, sophisticated techniques and unique products.

Money matters

For most of the country's smaller businesses, financing woes hinder expansion efforts.

Funding is critical to growth, but obtaining a conventional bank loan usually requires collateral in the form of assets, which most SMEs struggle to put together.

In addition, before going public, these companies lack adequate access to direct financing from the capital market. This makes financing a dilemma for SMEs, particularly those that are tech-intensive or are in great need of fresh liquidity to keep orders running.

"China's SMEs have long struggled with the issue of inaccessible and unaffordable financing, and there are two reasons for this. One is the limited avenues of financing available, and the other is that the country is still not doing well in terms of ownership neutrality," Tian said.

"When they rely on bank credit for liquidity, smaller businesses usually have to pay higher costs due to the higher risk and uncertain returns they represent, which inhibits corporate innovation. Because risk evaluation for smaller businesses is lacking, banks favor State-owned enterprises."

The newly issued guideline contains measures to tackle these issues.

In particular, it clarified that SME's will receive more support when seeking direct financing.

The National Equities Exchange and Quotations, an over-the-counter financing platform for Chinese SMEs, will be reformed.

The Beijing Stock Exchange, China's newest bourse which started trading in mid-November, will assist SMEs by creating a playing field for nurturing growth.

"With more specific measures aimed at improving the multilayered capital market, the BSE will work to provide a number of services including listing financing, share transfer and refinancing options to address the need of SMEs to grow, and to unleash their potential," Tian said.

In addition, policies supporting investment will be improved to encourage smaller companies to innovate, with SMEs being encouraged to align with the capital market through mergers and acquisitions.

Wang Wanfa, chairman of Shandong Wantong Hydraulic, an SME specializing in the design and manufacture of hydraulic products that recently listed on the BSE, said that before going public, financing channels were limited and the company mainly relied on bank loans.

Over the past year, the manufacturing-intensive company faced numerous challenges, including rising commodity prices, sporadic cases of COVID-19 and diminished energy supplies. Since the third quarter, things have improved, as the company now enjoys tax deferral policies and reprieves from other fees as part of the government's efforts to help SMEs respond to recent challenges.

"Going forward, as a listed company, we expect a more relaxed lending policy from financial institutions and deepened reform in the secondary capital market," Wang said.

Banks have already worked on certain measures to cope with SME financing woes.

For example, Ping An Bank has recently initiated a project in cooperation with a research body and tech firm to build financing platforms for smaller businesses and offer tech and financing solutions.

"A key fulcrum for our bank in supporting the real economy is backing the smaller business community," said Xie Yonglin, chairman of Ping An.

He added that the bank has been developing its IoT platform to further empower enterprises with data support, help them get financing and step up their digital transformation.