SMEs confront perennial woes over bank loans
By Hu Xiaocen |
April 13, 2012, Friday
|
Print Edition
Print Edition
THE legend of Steve Jobs starting Apple in his backyard garage has fired the imagination of many Chinese who feel that's the model for entrepreneurship in China.
But one person who isn't feeling much like a Steve Jobs is Zhang Younian, who runs a small business constructing sports facilities in Shanghai.
"Cash is always the problem," said Zhang Younian, who employs 22 workers and has trouble meeting his costs because suppliers demand payment in advance and customers pay him after work is done.
What he needs is a bridging loan from a bank, but he can't get one.
"The company is always cash-hungry and the banks just turn a deaf ear," he said.
It's a common headache for small and medium-sized businesses in China, which account for about 80 percent of the nation's employment. These companies don't have the clout of huge state-owned enterprises when seeking credit from big banks, and even when they can secure loans, it can be a long, slow process with high interest rates.
It is even worse if they seek loans from unlicensed private lenders because the interest rates are exorbitant.
"The financing cost for SMEs in the US is around 5 percent," Long Yongtu, former vice minister of foreign trade and economic cooperation, told a conference recently in Beijing. "But for Chinese SMEs, it ranges from 30 to 40 percent."
The drought of credit for small business worries national leaders.
Support for SMEs
"The government is determined to help SMEs," Premier Wen Jiabao said last week. "The central bank and regulators are taking measures to restrain banks from arbitrary charges. We are also looking to further cut taxes to provide more support to SMEs."
So why is there suddenly so much buzz about the financing problems of small business? China's recent economic data might be part of the reason.
The HSBC's Purchasing Managers Index, which is slanted toward private and export-oriented companies, indicated manufacturing activity fell to a four-month low in March.
Analysts said export-oriented smaller business in coastal areas have been hard hit by deteriorating economies in Europe, China's biggest trade partner. Meanwhile the yuan's appreciation, which makes exports more expensive, point to a bleak outlook for companies bleak.
Numbers don't mean much to businessmen like Zhang. What they want to see is cash in hand.
"Global financial woes and the domestic economic slowdown seem to pale in importance when my own backyard is on fire," said Zhang. "Water that's out of reach won't quench the flames."
These small cash-strapped firms actually play a big role in the economy. The National Bureau of Statistics says almost 100 percent of companies in China fall into the category of SMEs. They contribute over 60 percent of gross domestic output and 50 percent of government tax revenue.
The Chinese government nowadays is placing great emphasis on companies moving up the value chain by embracing new ideas and advanced technology - the Steve Jobs formula.
'Jobs-like' investment
Ningbo in Zhejiang Province on China's east coast late last year invested 500 million yuan (US$79 million) to educate and train 1,400 people to be "Jobs-like." Former table tennis queen Deng Yaping, now the president of Jike.com, a search engine company, said last November that she needs 23 "Jobs-like" people on her team to ensure the company's success.
But many people point out that Jobs himself might not have been so successful if his backyard garage had been in China.
Simply stated, bright ideas need financing.
Mao Yushi, a consultant with the Asian Development Bank, said community banks could be one channel for slaking "thirsty" SMEs.
"In the US, there are 8,000 banks, and most of them are community banks that serve local companies," he said.
Xie Dongming, an economist at OCBC Bank, said China should put small business at the core of its financial reforms.
A recent report by Deloitte Touche Tohmatsu CPA Ltd said lenders are beginning to follow government incentives encouraging more lending to small business.
In 2011, loans to SMEs were 10 percentage points above growth in all lending, Deloitte said.
But one person who isn't feeling much like a Steve Jobs is Zhang Younian, who runs a small business constructing sports facilities in Shanghai.
"Cash is always the problem," said Zhang Younian, who employs 22 workers and has trouble meeting his costs because suppliers demand payment in advance and customers pay him after work is done.
What he needs is a bridging loan from a bank, but he can't get one.
"The company is always cash-hungry and the banks just turn a deaf ear," he said.
It's a common headache for small and medium-sized businesses in China, which account for about 80 percent of the nation's employment. These companies don't have the clout of huge state-owned enterprises when seeking credit from big banks, and even when they can secure loans, it can be a long, slow process with high interest rates.
It is even worse if they seek loans from unlicensed private lenders because the interest rates are exorbitant.
"The financing cost for SMEs in the US is around 5 percent," Long Yongtu, former vice minister of foreign trade and economic cooperation, told a conference recently in Beijing. "But for Chinese SMEs, it ranges from 30 to 40 percent."
The drought of credit for small business worries national leaders.
Support for SMEs
"The government is determined to help SMEs," Premier Wen Jiabao said last week. "The central bank and regulators are taking measures to restrain banks from arbitrary charges. We are also looking to further cut taxes to provide more support to SMEs."
So why is there suddenly so much buzz about the financing problems of small business? China's recent economic data might be part of the reason.
The HSBC's Purchasing Managers Index, which is slanted toward private and export-oriented companies, indicated manufacturing activity fell to a four-month low in March.
Analysts said export-oriented smaller business in coastal areas have been hard hit by deteriorating economies in Europe, China's biggest trade partner. Meanwhile the yuan's appreciation, which makes exports more expensive, point to a bleak outlook for companies bleak.
Numbers don't mean much to businessmen like Zhang. What they want to see is cash in hand.
"Global financial woes and the domestic economic slowdown seem to pale in importance when my own backyard is on fire," said Zhang. "Water that's out of reach won't quench the flames."
These small cash-strapped firms actually play a big role in the economy. The National Bureau of Statistics says almost 100 percent of companies in China fall into the category of SMEs. They contribute over 60 percent of gross domestic output and 50 percent of government tax revenue.
The Chinese government nowadays is placing great emphasis on companies moving up the value chain by embracing new ideas and advanced technology - the Steve Jobs formula.
'Jobs-like' investment
Ningbo in Zhejiang Province on China's east coast late last year invested 500 million yuan (US$79 million) to educate and train 1,400 people to be "Jobs-like." Former table tennis queen Deng Yaping, now the president of Jike.com, a search engine company, said last November that she needs 23 "Jobs-like" people on her team to ensure the company's success.
But many people point out that Jobs himself might not have been so successful if his backyard garage had been in China.
Simply stated, bright ideas need financing.
Mao Yushi, a consultant with the Asian Development Bank, said community banks could be one channel for slaking "thirsty" SMEs.
"In the US, there are 8,000 banks, and most of them are community banks that serve local companies," he said.
Xie Dongming, an economist at OCBC Bank, said China should put small business at the core of its financial reforms.
A recent report by Deloitte Touche Tohmatsu CPA Ltd said lenders are beginning to follow government incentives encouraging more lending to small business.
In 2011, loans to SMEs were 10 percentage points above growth in all lending, Deloitte said.
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