By Zhang Lu (China Daily)
Updated: 2007-07-27 09:40

Governments at all levels should join efforts to create a more favorable environment for financing small enterprises, chairman of the China Banking Regulatory Commission (CBRC) said yesterday.

"The central and local governments should strengthen policy support for financial institutions, encouraging them to grant loans to small enterprises," Liu Mingkang said at a forum that brought together high-level officials to discuss financing solutions for small enterprises.

Liu suggested lowering the business tax rate for financial institutions on interest income generated by loans to small enterprises.

Banks should also be allowed to write off part of losses from small enterprises before taxation and should set aside the full amount of reserves for small enterprise loans before taxation, Liu said.

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He also suggested building a sound credit environment, cutting additional costs for financing small enterprises and cultivating a diversified financing system that includes banks, venture capital funds, private equity funds and other market players.

Liu said the CBRC began to guide commercial banks to improve loan services to small enterprises in 2005.

Outstanding loans to small enterprises stood at 5.35 trillion yuan at the end of 2006, 15.8 percent more than the previous year.

The non-performing loan (NPL) ratio in the small-enterprise sector dropped 5.1 percentage points last year.

Yet the NPL rate was still as high as 19.3 percent, which in turn created a continuing bottleneck in financing for small companies.

Wang Li, deputy director of the State Administration of Taxation, told the forum that the administration will further improve tax policies for small enterprises.

Small companies with low profits will be taxed at 20 percent under the new tax regime set to begin next year, 5 percentage points lower than the standard corporate rate, he said.