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Come to SMEs' aid

(China Daily)
Updated: 2008-08-20 10:03

Wider access to loans the People's Bank of China announced on Monday and stronger fiscal support the Ministry of Finance promised together will surely give fund-thirsty small- and medium-sized enterprises (SMEs) a much-needed shot in the arm.

Yet, to develop small businesses into a sustainable source of both economic growth and job creation in China, policymakers need to speed up overdue financial reforms and thereby address the long-term problem of insufficient funding for SMEs.

China's central bank raised the ceiling of small-scale mortgage loans for companies and individuals from 1 million yuan ($145,796) and 20,000 yuan to 2 million yuan and 50,000 yuan, respectively.

Such a policy change is ostensibly aimed at easing financial difficulties for small businesses and self-employed individuals and thus preventing mass unemployment.

Simply to keep unemployment at the current level, China must help 10 million urban dwellers find jobs this year.

With SMEs providing more than three quarters of urban employment opportunities, it is more than obvious that policymakers should pay close attention to how they fare.

While the tightening monetary policy China adopted to battle inflation began to bear fruit in recent months, more and more evidence emerged to confirm that small businesses had been hit hard by domestic credit control and weakening external demand. The former has practically squeezed SMEs out of the formal banking market, and the latter scrapped their profit margins to further lower their creditworthiness.

Financing difficulty is nothing new for China's SMEs. What is new is that the combination of macroeconomic control at home and a slowdown of the global economy has exacerbated the problem to the extent that risks loss of many jobs.

More fiscal incentives to help SMEs survive their present hardship will make a good use of the country's soaring fiscal surplus that exceeded 1 trillion yuan in the first half of this year.

And lifting the caps on small mortgage loans can channel more banking funds to underpin the development of many labor-intensive SMEs. All the measures the authorities have taken may give an immediate boost to fund-thirsty small businesses. But they will not meet SMEs' growing demand for funds once and for all.

Policymakers have long recognized the necessity to develop diversified financial institutions to support SMEs. And it has been suggested for years that a growth enterprise board for SMEs to raise funds from the stock market is badly needed.

The sense of urgency that SMEs' current financing difficulty evoked should also accelerate financial reforms and innovation to fix structural problems in the current financial sector that choke long-term growth of small businesses.