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September 23, 2009

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China offers financial help to struggling small businesses

CHINA is to cut taxes, encourage private capital to offer financing services and promote training to help ailing small businesses ride out the financial crisis.

The State Council, the Cabinet, yesterday launched a guideline on how to boost China's small and medium businesses, calling for better financial services, expanded financing channels and improvements in the credit guarantee mechanism.

"More actively effective measures are needed to help the ailing small and medium enterprises out of the mire of difficulties," the State Council said in a statement on the central government Website.

Small businesses are still confronted with serious challenges due to the effects of the global financial crisis since the second half of last year, the statement said.

Small businesses create most of the jobs in China and the stable and health development of the sector will help boost China's economy, which is targeted to grow by 8 percent this year, the State Council said.

For the whole of 2010, China will cut the corporate income tax rate from 25 percent to 20 percent for small businesses whose annual taxable income is less than 30,000 yuan (US$4,392). The small businesses' taxable income is halved to trim their tax burden.

Those struggling small companies that fail to pay tax on time can enjoy a three-month grace period, the statement said.

Small businesses bear higher risks for banks, leaving lenders reluctant to offer credit to small players whose credit-worthiness is difficult to assess due to the lack of enough credit track records. That's why small business have limited financing channels and some have turned to underground illegal loan sharks.

The central government yesterday rolled out a raft of measures to encourage financing for small business.

China said it would encourage private capital to participate in the reform of rural cooperatives and to buy into rural commercial banks to give small businesses more financing options. Qualified small-sum loan companies, which are banned from taking public deposits, can also transfer into rural commercial companies.

The new measure will stimulate private companies to set up loan companies before they are qualified to step into the bigger and more lucrative banking industry.

The central government will also cover part of the bad loans banks incurred from lending to small and medium businesses to encourage lenders to boost their small business credit.

There are also plans to train 1 million managers in small companies over the next three years to increase their corporate governance.


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