Millions of Small Businesses Still Starved of Credit

By Zhang Xiangdong
News, issue no.413, March 30, 2009
Translated by Zhang Junting
Original article: [Chinese]

New loans in China for the first quarter of this year would amount to nearly 4.6 trillion yuan, but behind the staggering figure, millions of small and medium-sized businesses nationwide were still struggling to raise funds.

Data from the National Association of Industry and Commerce (NAIC) showed that in January of this year, private firms had 421 billion yuan in short-term loans, a 700 million yuan decrease from December 2008. That was despite 400 billion yuan in new short-term loans released that month.

According to Chen Yongjie, an official with NAIC, the central government had become anxious to deal with the issue, with China's Banking Regulatory Commission taking measures to ease borrowing for small and medium-sized businesses.

But, despite the efforts, loans to them were still plummeting.

A Visit to Chongqing
From March 23 to 29, a delegation made up of the NAIC, China's Ministry of Industry and Information Technology, the China Banking Regulatory Commission, China's central bank, the United Front Work Department, and Development Research Center of the State Council made a special trip to Chongqing city. It was the first stop for the team's research on funding scarcity for small and medium-sized businesses.

During their time there, the group held a roundtable discussion with more than ten small companies, all of which said they had been unable to secure bank loans recently.

According to statistics from local industry associations, around 20% of small and medium-sized companies in China had halted production to some degree by early March. The NAIC has cited this as the main reason why 20 million migrant workers had returned to their hometowns during late January's Spring Festival holiday.

Data provided to the delegation by the Chongqing government indicated that 82% of small and medium-sized businesses there considered the lack of funds the main hindrance to their development.

Credit Where it's Due
The working group went on to hold a roundtable with large private firms, which without exception said they had access to loans recently.

Of the 330,000 total industrial businesses nationwide, the 300,000 small-scale industrial enterprises with annual incomes lower than 30 million yuan were effectively unable to borrow from banks.

The EO learned that the delegation chose Chongqing because the city has many small and medium-sized financial institutions, including more than 50 small lending firms. In spite of them, small and medium-sized companies' were still starving for cash in Chongqing.

Meng Fu, chairman of the NAIC, stressed that private businesses were not benefitting from the spillover effects of the Chinese government's stimulus funds.

He said small and medium-sized companies should receive a greater share of the distribution of national financial resources because they were not only the driving force of economic growth, but also the key to reducing unemployment, improving people's welfare and increasing social stability, more so than "so-called large projects worth billions in investment."

The Chinese government has recently pushed measures to solve financing problems for small and medium-sized businesses - for example, China's Banking Regulatory Commission has required banks to open loan departments exclusively for small companies.

But Chen said it was hard to tell how effective these measures would be: "What we can see clearly now from the statistics, is that loans for small and medium-sized businesses are still dropping."