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Chinese government boosts financial support for small businesses

Zhang Yue
Updated: Jul 27,2016 9:56 PM

Premier Li Keqiang makes an inspection visit to the head office of China Construction Bank on June 20. Premier Li called for more investment to resolve the financing difficulties of enterprises, especially small and micro businesses and private enterprises.[Photo/Xinhua]

The Chinese government will develop policies that encourage more financial support to small and micro businesses, including more diversified financing channels, more loan discretion to local banks and better developed credit rating system across the country, and making sure these loans are extended.

The measures were approved at the State Council executive meeting on July 27, chaired by Premier Li Keqiang.

“We must tackle financing difficulties for small and micro businesses as part of our effort to encourage financial support to the real economy,” Premier Li said. “Such efforts will further unleash economic potential and create more jobs.”

The new measures are part of an update on the country’s document about encouraging support for small and micro businesses published in 2013.

It has been decided that local banks with due prudence will have discretion on financing local small and micro businesses with flexible terms. Finance institutions are not allowed to withhold financing for small and micro businesses eligible for renewing loans, and small and micro business fees will be eliminated from their financing channels.

Also, more social funds are encouraged to support the development of small and micro businesses, as well as financial innovation, according to the new plan.

“Financing difficulty for small and micro businesses is a challenge that must be met,” Premier Li said at the meeting. “It is not risk-free. Yet we should not stop our efforts just because of such risks. What must be done must be done.”

Such measures are being carried out now, but China’s private business growth momentum has yet to pick up. Private business investments, which are mostly small and micro businesses, contribute more than 60 percent of China’s fixed assets investment, and private business provides more than 80 percent of the country’s workforce. Yet growth in the sector slowed down during the first half of this year due to a variety of reasons, including volatility in the international market.

For the first six months, China’s private investment grew by 2.8 percent, triggering concerns from the central government. The government undertook a nationwide review of the reasons for such a decline. It was found that the most common reason is that small and micro businesses face increasing difficulties in financing, while financing cost is also a major issue.

The new measures aim to foster confidence in private investors and support its growth.

“Generally speaking, financing costs for small and micro businesses have come down,” the Premier said. “Yet there are some backlashes in the context of downward economic pressure. Policies, both existing and new, must be fully implemented.”

One official from the China Association of Small and Medium-sized Business complained that even though the central government has made tremendous efforts to support small and micro businesses, difficulties in financing remains the top challenge, and has become the biggest constraint for small and micro businesses’ development in China.

“Adequate financing for small and micro business is a common challenge globally,” Premier Li said. “All government departments concerned should take concrete measures to support the healthy development of small and micro businesses. This is, in turn, an effective way to protect the finance sector from such risks.”

The new plan also calls for, among other things, building more comprehensive credit insurance and credit rating systems across the country.