China has significantly enhanced financial support measures aimed at small and medium-sized enterprises (SMEs) to boost economic vitality.
There has been a notable increase in the cap for inclusive micro and small loans from 10 million yuan (about 1.4 million U.S. dollars) to 20 million yuan per borrower, and refinancing initiatives for agricultural and small businesses have seen interest rate reductions, further alleviating financial burdens on these crucial economic entities.
At the end of May, the outstanding inclusive micro and small loans amounted to 31.56 trillion yuan, marking a 19.3 per cent year-on-year increase.
In April, China set up a re-lending program worth 500 billion yuan to promote technological innovation and industrial upgrades, with 100 billion yuan specially designated to help boost the growth of tech firms.
An initial list of nearly 7,000 qualified enterprises under the program was sent to banks recently.
“We immediately reviewed the credit and business needs of relevant clients upon receiving the list,” said Zhang Xiaorui, deputy head of the Shandong branch of the Industrial and Commercial Bank of China (ICBC). The bank has established green channels and streamlined services to ensure businesses receive the funds timely.
One such beneficiary, an electromechanical company in Yantai in east China’s Shandong Province, completed the process for its 1-million-yuan loan within one day, effectively easing its cash flow pressures.
The challenges SMEs face in accessing affordable financing often stem from their insufficient collateral and vulnerability to risks. To address this problem, Chinese lenders have leveraged digital technologies to reduce risks and offer tailored services to SMEs.
Despite lacking tangible assets suitable for traditional collateral, a manufacturer of high-performance engineering plastics in east China’s Zhejiang Province recently secured a 2 million yuan credit line from Zhejiang E-Commerce Bank. The bank made the decision to grant the loan after using advanced data analytics to evaluate industry chain dynamics and operational risks.
According to Chen Kai, vice general manager of the bank’s industry finance department, nearly 30 percent of the credit recipients were involved in pioneering scientific research and technological development.
This data-driven lending approach has been adopted by many other banks in China. The Export-Import Bank of China has used big data on trade to tailor online products for micro and small businesses engaged in international trade. The ICBC and the Bank of China have launched technology finance centers to bolster support for technology-driven SMEs.
Apart from bank loans, China also encourages SMEs to take advantage of direct financing channels, including the capital market and venture capital (VC) investment.
The government recently released a string of policies to bolster VC investment, with specific measures to support the growth of SMEs through patent industrialization. Such equity financing is better suited to spur innovation activities during the high-risk research and development phase, said Zhou Guanping, a researcher at China Everbright Group.
The Beijing Stock Exchange, established in November 2021, is also dedicated to serving innovative SMEs.
Among the 249 listed companies on the exchange, SMEs account for over 80 per cent, underscoring the pivotal role of public equity markets in fostering innovation and expansion among SMEs. The total capitalization of the exchange has surpassed 330 billion yuan.
In addition to enhanced financing channels for SMEs, experts have also called for more efforts to ensure that the financing is more sound and sustainable.
Hou Liming, a researcher at the Renmin University of China, said that work should be done to further reduce the liquidity pressure of SMEs due to delinquent receivables, promote their digitalization, and launch more insurance products targeting SME risks.
