The financing difficulties for small-and medium-sized enterprises (SMEs) is primarily caused by problems with the companies themselves and is worsened by wary financial institutions that refuse to provide innovative financing services to small companies, Jiang Youwei, mayor of Shenyang, Liaoning Province, told NewsChina. Some companies have low credit ratings and few assets they can leverage as collateral, Jiang said.
Liang Qidong, vice director of the Liaoning Academy of Social Sciences, agreed that the key to gaining access to financing lies in the credit worthiness of a company. But it is common for small companies to operate in violation of regulations. They lack financial transparency and credit records. Some companies do not even have a complete financial system, and some firms just want to take advantage of the loopholes in bank regulations to get money. Under these circumstances, these companies cannot meet even the lowest loan thresholds from lending institutions.
Governments in the three provinces have designed a series of policies to make bank loans more accessible for small companies. For example, banks in Liaoning, whose increase in their loan balance to private companies rises by over 30 percent or 50 percent a year could get rewarded with 0.25 percent or 0.5 percent of the newly increased loan amounts for private enterprises that year.
Jilin Province announced it would ensure loans to private enterprises to reach 50 percent of the newly added corporate lending in three years. Heilongjiang set similar fixed targets for its banks in terms of increasing loans to small companies.
According to Chen Yao, a research fellow at the Chinese Academy of Social Sciences, “setting goals” for banks will change the imbalance in bank lending to some extent, make banks pay more attention to SMEs and provide more services as well as help the government accumulate experience in supporting these companies. It will be effective to improve the financing environment for SMEs.
But Li Dongsheng, vice president of the All-China Federation of Industry and Commerce and CEO of TCL TV, told NewsChina he feared that easing companies’ financial burdens through setting goals for banks might put the latter in a dilemma: caught in the middle by the pressure of containing non-performing loans (NPL) and the pressure to support SMEs. It is a source of financial risks for banks.
On March 13, the China Banking and Insurance Regulatory Commission announced that commercial banks could increase the NPL ratio for small- and micro-companies by at most three percentage points higher than the NPL ratio for other kinds of loans. Previously, Heilongjiang Province also put forward policies to increase the NPL ratio for small- and micro-companies by two percentage points. It is regarded as one way out for banks.
Wang Yuxia, professor of economics at Dongbei University of Finance & Economics, believes that commercial banks should be distinguished from policy banks and thus should not shoulder too many political and social duties, such as increasing loans to small companies to stabilize employment. Commercial banks pursue profits, after all. If the NPL ratio is too high as a result of too many loans to SMEs, it might lead to chaos in the financial market. Wang suggested that policy banks take the responsibility, so if there are bad results, they will be backed up by
What’s more, Wang told NewsChina that in 2019, the Chinese economy is under pressure from a slowdown, and externally the Sino-US trade woes expose the economy to more risks. Businesses will face more challenges than in 2018. This means if the government wants to continue to encourage banks to support SMEs, it should make more detailed regulations to guide banks on how to avoid and control risks, and there should be operable policies of supervision and management. “But as of now… the reform lacks support policies,” Wang said.
Li Dongsheng believes that it is more reasonable to help companies get money via market approaches instead of the administrative methods that already proved problematic. He suggested the government start building guarantee institutions to help companies with low credit ratings access loans, although they may carry higher interest rates.
The Liaoning provincial government is already restructuring its policy-based financing guarantee system to improve its services, particularly aiming to support the development of small- and medium-sized science and technology companies with more growth potential.