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China helps SMEs tide over difficulties

(Xinhua)
Updated: 2008-12-06 12:33

The figure didn't include service industry firms and SMEs whose sales were less than 5 million yuan, since there were no authoritative figures available on those categories.

A migrant worker waits to board a train back to her hometown at a railway station after failing to find jobs in Dongguan, Guangdong province December 6, 2008. [Agencies]

Industry officials attributed the SME difficulties mainly to high raw material prices (leading to higher production and operation costs), financing difficulties, sharp export plunges and RMB appreciation.

Data from the China Association of Small and Medium-sized Enterprises (CASME) showed that compared with the second half of 2007, the country's SMEs have suffered 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. But the average product ex-factory price is up only about 5 percent. These factors, accompanied by surging land prices and the appreciation of the RMB, have almost pushed SMEs to the limit.

SMEs are an important pillar of the Chinese economy. More than 95 percent of the 4.3 million SMEs are privately owned and many are in the export sector. They generate almost 60 percent of the nation's gross domestic product (GDP), 50 percent of tax revenues, 68 percent of exports and 75 percent of new jobs every year.

Fighting Financial Plight

Difficulty in raising capital has become a critical bottleneck to the growth of SMEs.

"A broken capital chain is deadlier than reduced orders," said Zhou Zhiming, board chairman of Shengda Clothes and Toy Corp, based in Dongguan City, south China's Guangdong Province. "We have to pay cash for raw materials these days. We may carry on with reduced orders. But without operating funds, we will die a sudden death."

SMEs like Zhou's largely have two channels to solve the pressing financing problem - taking loans with banks or borrowing loans on the black market at high rates.

"Bank loans are made under too rigid conditions. We have to hold in pledge our production lines and factory buildings, which are discounted in evaluation. We will wait for at least one month to get the loans," said Zhou.

Different from their overseas counterparts, which directly finance about 70 percent of their funds on the capital market, Chinese SMEs have only two percent of their funding needs met on the capital market. SMEs mainly depend on bank loans for the rest.

However, commercial banks, with quite strong risk-aversion sentiment, are cautious about lending to SMEs.

According to Li Zibin, head of CASME, SME loans made up only 15 percent of the total in the first half of this year. "It is obviously out of proportion."

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