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WANG Jiarui runs a small building material store in Yiwu, east China’s Zhejiang Province. When he started his business 10 years ago, getting financing was a major headache. “i had to begin my enterprise by borrowing money from all my friends and relatives,” said the entrepreneur. in the years since then, the situation has improved gradually.
Wang recalled that when he was in urgent need of an additional 600,000 yuan ($95,238) to purchase ceramic tiles in October 2010, he contacted the Zhejiang Chouzhou Commercial Bank for advice. The bank appraised his logistics and inventory capacities and approved a one-year loan for Wang’s store only eight days later. Wang has already paid off the principal and interest.
Alternative financing
Over 97 percent of enterprises in Zhejiang are classified as small and microsized enterprises like Wang’s, contributing to over 80 percent of the province’s GDP. however, not everyone is as lucky as Wang. A recent report by the AllChina Federation of industry and Commerce said about 90 percent of China’s small and medium-sized enterprises(SMes) couldn’t get loans from banks. About 62.3 percent of their financing came from private lenders in the past three years.
Many SMes experienced choppy financial situations due to rising material and labor costs, tough export climate, and a plight further exacerbated by their difficulties in fund raising, said economist Gu Shengzu, who conducted several field studies in the coastal province last year. “The situation [facing SMes] became even worse than during the 2008 global financial crisis,” he said.
last October, the State Council pledged stronger financial and fiscal support to small and micro-sized businesses by reducing their tax burdens and encouraging banks to increase credit support.
in the subsequent few months, it has continually placed priority on expanding financing channels, and issued a series of supportive policies and measures, as the difficulty in financing is still the top plight of many small businesses.
liu Kegu, President of the China Micro-finance institution Association, has been striving hard to solve financing problems for SMes. liu said that private lending activities should be better guided and regulated in order to play a positive role in boosting the country’s economy. he also called for establishing grassroots finance institutions to provide services for micro-enterprises, self-employed people and farmers.
“A multi-level financial system could better promote the development of China’s real economy,” liu told ChinAfrica.
“As you can see, there is not a lot of capital needed by a single small business, but demand [from small companies] for financing nationwide is at an all-time high,” said Wang Jiarui, calling for more financial institutions to engage in offering specialized services for private companies.
in recent years, micro-financing firms and village banks have opened up a new way to solve the financial difficulties of SMes in China. As of the end of 2011, there were 726 village banks, said China Banking Regulatory Commission, the nation’s top banking regulator.
The number of micro-financing firms rose 63.81 percent year on year to reach 4,282 by the end of last December, with outstanding small credit reaching 391.5 billion yuan ($62 billion), up from 197.5 billion yuan ($31.34 billion) by the end of 2010. The firms extended 193.5 billion yuan ($30.71 billion) of new loans last year.
“As they offer more flexible repayment terms, micro-loan companies can be a good financing alternative,” said Gao Dekang, Chairman of Bosideng Co. ltd., a leading Chinese clothing brand in east China’s Jiangsu Province.
Regulating private lending
experts said capital on the market is more than sufficient, but the lending channels are not efficient.
China has approved plans this March to set up a pilot zone in the eastern city of Wenzhou with a deep tradition of entrepreneurship, to regulate private financing activities.
The long-awaited decision comes after local debt-laden entrepreneurs, unable to repay debts, fled the city or even committed suicide last year when banks cut lending to SMes as part of credit-tightening measures. To keep business running, many business owners had to resort to seeking underground credit.
Analysts believe that the launch of the pilot zone sent positive signals. it showed the government’s determination to lead the financial reforms that are urgently needed, and lead private fund-raising activities to develop in an orderly way so as to strengthen their capability to serve the real economy, said Ma Guangyuan, a researcher at the Venture Capital Research institute of Peking University.
The decision covered 12 major points, which include developing privately owned financial services, setting up village banks and rural financial co-ops, and allowing private direct investments to be made overseas.
Owners of private businesses wel-comed the move. “i see a lot of new investment opportunities coming up for private capital,” said Fu Jiarong, General Manager of Jiexin Micro-Finance Co. in lucheng District of Wenzhou. he added that micro-finance companies, along with other new types of financial institutions such as village banks and rural financial co-ops would absorb substantial private capital that used to be transacted underground, and the capital would greatly boost the local economy.
Zhou Chunlong, General Manager of an instrument company in city of leqing in Zhejiang, called for more attention from the financial institutions for the needs of small and micro-sized private enterprises. Besides, he suggested the regulator should strengthen supervision and establish sound risk-control systems.
The reform will standardize and regulate private fund-raising and loans. Ma believes that it is “of importance not only for Wenzhou, but also it can serve as an example for financial reform and economic development nationwide.”
Wang recalled that when he was in urgent need of an additional 600,000 yuan ($95,238) to purchase ceramic tiles in October 2010, he contacted the Zhejiang Chouzhou Commercial Bank for advice. The bank appraised his logistics and inventory capacities and approved a one-year loan for Wang’s store only eight days later. Wang has already paid off the principal and interest.
Alternative financing
Over 97 percent of enterprises in Zhejiang are classified as small and microsized enterprises like Wang’s, contributing to over 80 percent of the province’s GDP. however, not everyone is as lucky as Wang. A recent report by the AllChina Federation of industry and Commerce said about 90 percent of China’s small and medium-sized enterprises(SMes) couldn’t get loans from banks. About 62.3 percent of their financing came from private lenders in the past three years.
Many SMes experienced choppy financial situations due to rising material and labor costs, tough export climate, and a plight further exacerbated by their difficulties in fund raising, said economist Gu Shengzu, who conducted several field studies in the coastal province last year. “The situation [facing SMes] became even worse than during the 2008 global financial crisis,” he said.
last October, the State Council pledged stronger financial and fiscal support to small and micro-sized businesses by reducing their tax burdens and encouraging banks to increase credit support.
in the subsequent few months, it has continually placed priority on expanding financing channels, and issued a series of supportive policies and measures, as the difficulty in financing is still the top plight of many small businesses.
liu Kegu, President of the China Micro-finance institution Association, has been striving hard to solve financing problems for SMes. liu said that private lending activities should be better guided and regulated in order to play a positive role in boosting the country’s economy. he also called for establishing grassroots finance institutions to provide services for micro-enterprises, self-employed people and farmers.
“A multi-level financial system could better promote the development of China’s real economy,” liu told ChinAfrica.
“As you can see, there is not a lot of capital needed by a single small business, but demand [from small companies] for financing nationwide is at an all-time high,” said Wang Jiarui, calling for more financial institutions to engage in offering specialized services for private companies.
in recent years, micro-financing firms and village banks have opened up a new way to solve the financial difficulties of SMes in China. As of the end of 2011, there were 726 village banks, said China Banking Regulatory Commission, the nation’s top banking regulator.
The number of micro-financing firms rose 63.81 percent year on year to reach 4,282 by the end of last December, with outstanding small credit reaching 391.5 billion yuan ($62 billion), up from 197.5 billion yuan ($31.34 billion) by the end of 2010. The firms extended 193.5 billion yuan ($30.71 billion) of new loans last year.
“As they offer more flexible repayment terms, micro-loan companies can be a good financing alternative,” said Gao Dekang, Chairman of Bosideng Co. ltd., a leading Chinese clothing brand in east China’s Jiangsu Province.
Regulating private lending
experts said capital on the market is more than sufficient, but the lending channels are not efficient.
China has approved plans this March to set up a pilot zone in the eastern city of Wenzhou with a deep tradition of entrepreneurship, to regulate private financing activities.
The long-awaited decision comes after local debt-laden entrepreneurs, unable to repay debts, fled the city or even committed suicide last year when banks cut lending to SMes as part of credit-tightening measures. To keep business running, many business owners had to resort to seeking underground credit.
Analysts believe that the launch of the pilot zone sent positive signals. it showed the government’s determination to lead the financial reforms that are urgently needed, and lead private fund-raising activities to develop in an orderly way so as to strengthen their capability to serve the real economy, said Ma Guangyuan, a researcher at the Venture Capital Research institute of Peking University.
The decision covered 12 major points, which include developing privately owned financial services, setting up village banks and rural financial co-ops, and allowing private direct investments to be made overseas.
Owners of private businesses wel-comed the move. “i see a lot of new investment opportunities coming up for private capital,” said Fu Jiarong, General Manager of Jiexin Micro-Finance Co. in lucheng District of Wenzhou. he added that micro-finance companies, along with other new types of financial institutions such as village banks and rural financial co-ops would absorb substantial private capital that used to be transacted underground, and the capital would greatly boost the local economy.
Zhou Chunlong, General Manager of an instrument company in city of leqing in Zhejiang, called for more attention from the financial institutions for the needs of small and micro-sized private enterprises. Besides, he suggested the regulator should strengthen supervision and establish sound risk-control systems.
The reform will standardize and regulate private fund-raising and loans. Ma believes that it is “of importance not only for Wenzhou, but also it can serve as an example for financial reform and economic development nationwide.”