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Pressure on SMEs to ease in 3-5 months

By Ding Qi (chinadaily.com.cn)
Updated: 2008-11-24 17:37

Within three to five months, domestic small- and medium-sized enterprises (SMEs) will feel the relief from the nation's economic stimulus package as long as they hold onto their capital chain at present, an SME association official told Monday's China Business News.

Li Zibin, president of China Association of Small and Medium Enterprises (CASME), said that the fourth quarter of this year and the first quarter of next year will be the most severe periods for domestic SMEs, but the pressure is expected to ease in March or April of 2009.

The paper quoted statistics from the National Development and Reform Commission that in the first half of the year, some 67,000 industrial enterprises, each with an annual sales volume of at least 5 million yuan ($732,064), went bankrupt, laying off more than 20 million employees.

However, Li noted that the figure didn't include service industry firms as well as SMEs whose sales are less than 5 million yuan since there have been no authoritative figures available on the categories.

Data from the CASME show that compared with the second half of last year, SMEs in China suffered an altogether 30-percent cost rise, which comprised a 20-percent rise in labor costs, an 11-to-15-percent rise in raw material costs, and a 40-percent rise in borrowing costs. These factors, accompanied by surging land prices and the appreciation of the RMB, have almost pushed small firms to the limit.

According to the report, financing difficulties are among the major problems the firms themselves cannot escape.

Although the country's 4.3 million SMEs have contributed to 60 percent of GDP, 50 percent of tax revenue and more than 75 percent of new jobs, bank loans to SMEs only accounted for 15 percent of all loans in the first quarter of this year, shrinking 7.5 percentage points from last year.

Meanwhile, SMEs' simple financing structure also causes problems. The report said that 70 percent of funds for overseas SMEs come from direct financing from capital market, but in China the market meets only 2 percent of funding needs for domestic SMEs, which mainly depend on bank loans for the rest. Therefore, when banks are reluctant to lend amid a tightening monetary environment or out of concerns for risk, financing inevitably becomes a problem for SMEs.

Li called on SMEs to seek all means possible to prevent their capital chains from being broken. The CASME is also exploring new funding sources for them, he said.

He added that the association is in talks with the Beijing Equity Exchange to promote direct financing through equity trading. It is also working together with Liaoning provincial government and Dalian municipal government to issue SME collective bonds, which carry an annual interest rate of only 6.5 percent, much lower than banks' lending charges.