Opinion: Alternate options for SME financing tapped
( 2002-08-16 09:51) (1)
Last week, the People's Bank of China, the country's central bank, asked commercial banks to give more credit to small and medium-sized enterprises (SMEs).
The central bank is poised to break the financing bottleneck of the small firms to galvanize the economy under deflationary pressure because SMEs play an increasingly important role in vitalizing the economy.
But given the current economic situation, whether the commercial banks will answer the call is doubtful.
China adopted a pro-active fiscal policy and an expansionary monetary policy in 1998. They have been successful in bolstering the fast and healthy growth of the national economy.
But deflation has not been effectively curbed. It is still haunting the economy.
In the first five months this year, demand remained weak. The production material price index, a critical barometer of the macro-economy, fell by 3.8 per cent year-on-year in May.
SMEs, if growing fast, can give a big boost to the economy. They provide 75 per cent of the overall employment and contribute 40 per cent to the State's revenue.
But lack of capital has blocked their better development.
Despite the financial difficulty of those firms, commercial banks are reluctant to extend them credit.
In a transitional period, the banks have accumulated a mountain of bad debt, which puts them at a disadvantage in competing with their overseas rivals entering the domestic market. Deflationary pressure further exacerbates their finances.
Fearing that their bad debts will increase, they are cautious in giving credit to small companies, which generally have an unpredictable profit prospect. Big firms with good profit expectations are their favourites.
It is thus clear that a central bank call can hardly change their stance. Concerted efforts should be made to tap other financing channels to aid the small enterprises.
The venture capital market, which focuses mainly on starting enterprises, should be fostered.
Other special fund and investment companies should also be encouraged to form a financing system to solve the problem of capital shortage in small enterprises.
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