More financing not a cure-all for small companies
Source: Xinhua |
June 13, 2011, Monday
|
Print Edition
Print Edition
NEW government measures that will create more financing opportunities for China's small businesses will provide aid in the short term, but will not be a complete cure for the problems these companies face, according to some of the country's financial experts.
The China Banking Regulatory Commission, the nation's top banking regulator, last Tuesday announced a series of measures aimed at boosting lending opportunities for small companies, which are often spurned by banks due to the risks involved.
The CBRC said it will permit higher bad loan ratios for banks that lend to smaller companies. The regulator will also exclude loans below 5 million yuan (US$771,000) when calculating banks' loan-to-deposit ratios, as long as those loans are given to companies with annual revenues of less than 30 million yuan.
Ningbo Changheng Plastic Household Products Co, based in east China's Zhejiang Province, is one small business that has gotten stuck between surging costs and tightened liquidity.
The company's General Manager Zhang Junjun said financing difficulties have made his company unable to handle large orders, which require large amounts of funding for the purchase of raw materials and the hiring of additional workers.
"The prices of everything, from rent to raw materials, electricity and wages, are all rising, except for prices for the products we are selling," Zhang said. He also said the company can't afford to pass rising costs on to consumers in the face of fierce competition from manufacturers in Vietnam and Bangladesh.
Wages are one area where China's small businesses are struggling to keep up. Government statistics show that in most cities, wages are rising an average of 20 percent annually as workers demand higher pay to cover rising living expenses.
Surging costs, the appreciation of the yuan and decreasing orders from overseas are causing Zhang's company, as well as many others in China's manufacturing belt, to struggle to stay profitable, said Wang Peng, a researcher from the Beijing-based China Center for International Economic Exchanges. Monetary tightening measures implemented by the government to combat inflation have also made conditions worse for small companies, Wang said.
Financing for small- to medium-sized companies has been more difficult this year, as overall monetary conditions have been tightened, according to a report released by the Ministry of Industry and Information Technology earlier this month. Two interest rate hikes earlier this year have pushed up the cost of borrowing for small businesses by at least 13 percent.
Small businesses, which create 80 percent of China's jobs and generate 60 percent of the country's industrial output, have long complained about difficulties in securing loans from banks, which prefer to lend to large companies as they are considered safer bets.
However, economists said the difficulties facing small businesses go far beyond financing. For many small businesses, financing shortages are just a symptom of a deeper problem, Wang said, adding "these companies are not as competitive as before due to rising costs."
China's manufacturers have long enjoyed low production costs, but as the yuan continues to appreciate, the prices of raw materials and labor will rise accordingly, Wang said.
Wang suggested the government should work to encourage small businesses to focus on moving up the value chain and raise the quality of their products.
Lian Ping, chief economist with the Bank of Communications, said "it is not right to put all the blame on banks. Most of the difficulties that small businesses face are the result of the way they are managed."
The China Banking Regulatory Commission, the nation's top banking regulator, last Tuesday announced a series of measures aimed at boosting lending opportunities for small companies, which are often spurned by banks due to the risks involved.
The CBRC said it will permit higher bad loan ratios for banks that lend to smaller companies. The regulator will also exclude loans below 5 million yuan (US$771,000) when calculating banks' loan-to-deposit ratios, as long as those loans are given to companies with annual revenues of less than 30 million yuan.
Ningbo Changheng Plastic Household Products Co, based in east China's Zhejiang Province, is one small business that has gotten stuck between surging costs and tightened liquidity.
The company's General Manager Zhang Junjun said financing difficulties have made his company unable to handle large orders, which require large amounts of funding for the purchase of raw materials and the hiring of additional workers.
"The prices of everything, from rent to raw materials, electricity and wages, are all rising, except for prices for the products we are selling," Zhang said. He also said the company can't afford to pass rising costs on to consumers in the face of fierce competition from manufacturers in Vietnam and Bangladesh.
Wages are one area where China's small businesses are struggling to keep up. Government statistics show that in most cities, wages are rising an average of 20 percent annually as workers demand higher pay to cover rising living expenses.
Surging costs, the appreciation of the yuan and decreasing orders from overseas are causing Zhang's company, as well as many others in China's manufacturing belt, to struggle to stay profitable, said Wang Peng, a researcher from the Beijing-based China Center for International Economic Exchanges. Monetary tightening measures implemented by the government to combat inflation have also made conditions worse for small companies, Wang said.
Financing for small- to medium-sized companies has been more difficult this year, as overall monetary conditions have been tightened, according to a report released by the Ministry of Industry and Information Technology earlier this month. Two interest rate hikes earlier this year have pushed up the cost of borrowing for small businesses by at least 13 percent.
Small businesses, which create 80 percent of China's jobs and generate 60 percent of the country's industrial output, have long complained about difficulties in securing loans from banks, which prefer to lend to large companies as they are considered safer bets.
However, economists said the difficulties facing small businesses go far beyond financing. For many small businesses, financing shortages are just a symptom of a deeper problem, Wang said, adding "these companies are not as competitive as before due to rising costs."
China's manufacturers have long enjoyed low production costs, but as the yuan continues to appreciate, the prices of raw materials and labor will rise accordingly, Wang said.
Wang suggested the government should work to encourage small businesses to focus on moving up the value chain and raise the quality of their products.
Lian Ping, chief economist with the Bank of Communications, said "it is not right to put all the blame on banks. Most of the difficulties that small businesses face are the result of the way they are managed."
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