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The problems faced by small and medium-sized enterprises in borrowing from banks and raising funds directly from the capital market is a serious problem in China, which is undergoing an economic restructuring and striving to expand small businesses and the non-state sector.
New policies are needed to support the growth of smaller enterprises financially, according to a forum on the development of China's financial market held in Tianjin, a port city in north China.
"It is imperative for the guiding principles and regulations of China's financial regime to keep abreast of changes," said Liu Hongru, former chairman of China Securities Regulatory Commission.
Liu said there had been two major changes in the Chinese economy since 1997. One was the replacement of sustained inflationary by deflationary pressure, the other a policy shift from mainly serving large state-owned enterprises to supporting smaller and non-public businesses.
However, the smaller enterprises had for long suffered from an insufficient supply of financing, due, in large part, to their exposure to high risks and their relatively low trustworthiness, cut-backs by state-owned commercial banks in an effort to turn more market-oriented and the under-development of China's money and capital markets, Liu said.
With China's fast economic growth since the 1990s, smaller enterprises contributed to 76 percent of the nation's total value-added industrial output and provided 75 percent of jobs in urban areas nationwide, according to data offered by the Small and Medium-sized Enterprise Department of the former State Economic and Trade Commission.
Over the past few years, China's central bank has worked out a series of policies and measures to support smaller enterprises, started a trial operation of a credit guarantee system for them and launched a start-up fund for scientific and technological smaller businesses.
Meanwhile, stock market access has been given to eligible non-state enterprises, and a law has been enforced since 2002 to promote the growth of smaller enterprises.
But all these endeavors are yet to meet the mounting demand of smaller enterprises for more efficient financial services.
"Under the current financial regime, smaller enterprises have to mainly depend on commercial banks for financial support," said Liu Hongru.
To this end, Liu suggested that special credit institutions should be established to provide services for smaller enterprises, together with credit rating and credit extension systems in compliance with the characteristics of such businesses, Liu said.
Special financial instruments should be developed to meet demand of smaller enterprises for financing and settlement, he added.
Besides, a group of smaller financial institutions that are compatible to smaller enterprises in terms of operation system and business scale should be created. Such institutions may be invested jointly by smaller and non-public enterprises, with the latter as their major customers, according to experts at the forum.
A deposits insurance system will also be necessary to help enhance the anti-risk ability of the smaller enterprises, the experts concluded.
Meanwhile, China's capital market should be improved to relieve the demand for cash among smaller enterprises, for which a second-board market, or a stock market for growth enterprises, was needed, according Xia Bing, a senior researcher from the Development Research Center under the State Council.
(Xinhua News Agency April 15, 2003)
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