Reform financial industry to serve real economy

Repeatedly pressing State-run banks to make loans to small and microenterprises, without restructuring the financial industry, cannot solve the root causes of their financing difficulties, said an article in Southern Metropolis Daily. Excerpts:

Premier Li Keqiang urged relevant parties to help small and microenterprises overcome their financing difficulties on Wednesday by quoting from British novelist Arthur Hailey's 1975 work, The Moneychangers, that commercial banks should aid both large and small businesses to ensure their lasting success. Li hinted it is wrong for banks to ignore the strong demand from small and microbusinesses.

He made his remarks at the Chinese cabinet's fourth conference this month on difficulties in financing for small and microfirms. The central authority's worries on the issue are obvious.

Take Shandong, the third-largest provincial economy, as an example. Only 65 percent of enterprises in the province can currently get financing in time, most of which are State-run or major enterprises.

In Wenzhou, Zhejiang province, a city renowned for its active private firms, only 10 percent of businesses can acquire financing through normal channels in the most difficult time since the 2008 global recession.

In China, more than 99 percent of enterprises are mid-sized or small enterprises. They are important job creators, innovators, taxpayers and exporters. But they have not yet enjoyed fair treatment in financing from the major financial sectors that are largely dominated by the State-owned banking industry.

The structure of China's financial industry determines that State-owned enterprises and local governments will always be the priority customers for State-owned banks.

Until the government reforms the financial sector's special structure according to the real needs of the Chinese economy, it is unrealistic to expect to solve the financing difficulties of small and microfirms simply by instructions within the government system.

The central government sets aside a special fund, in forms of research and development subsidies, for emerging industries, which is mainly to help private enterprises. Government departments at various levels still have a say over the use of the fund, but the market does not.

The government subsidy is totally different from bank loans, and cannot even supplement the shortage of financing for cash-thirsty firms, given their different natures.

China should encourage the development of middle and small-sized commercial banks and loan firms to break the large State-owned banks' dominance of the financial sector.

It is good news that the central authority decided to actively promote the development of mid-sized and small finance agencies for small and microbusinesses, and the agricultural industry.

The central authority has also given a green light to private banks. The first batch of licenses has already been given to successful applicants.

A market-oriented financial sector will better serve the real economy by allocating resources according to market laws.