Since China adopted its opening-up and reform policies, small and medium-sized enterprises (SMEs) have always been the most active element of the national economy.
The role they play in the economy has been further boosted after the Asian financial crisis exposed the weaknesses of large enterprises in countries like the Republic of Korea.
It is expected that SMEs will have even brighter prospects in the new century, according to an article in Financial News.
But whether the rapid growth of SMEs is possible in the future largely hinges on the establishment of a financial supporting system tailored to their growth, the article said.
China's small and medium-sized financial institutions have a close relationship with SMEs. These institutions include regional joint-stock commercial banks, urban commercial banks, urban and rural credit co-operatives.
Just like SMEs, they emerged along with the country's opening and reform drive. Their growth is closely linked with that of SMEs and has played a bigger part in China's financial sector, the article said.
The international experience shows that small and medium-sized financial institutions serve as the major patron for indirect financing for SMEs. Many countries have set up small and medium-sized financial institutions to specially cater for the needs of these enterprises. And only with a business focus on SMEs can these institutions thrive.
And it is also the same with China.
At present, the possibility for most SMEs to get direct finance from the capital market is thin. Although the State commercial banks have set up credit department catering for SMEs, its main clients are still big State-owned enterprises. As lending to SMEs involves higher risks and operation costs, they decline or find it difficult to make finance arrangements for SMEs.
Small and medium-sized banking institutions can fill the gap. With more financing means and flexible structures, they can better support small-scale companies including private companies that are usually disregarded for their low credit ratings, the article said.
With the accelerated pace of the market economy, the market differentiation will be further strengthened and consumers will demand more choices.
To meet the evolving market, the demand from SMEs for funds will also diversify. In this circumstance, big banks, being strained by their scale and structure, may find it difficult to constantly up-date their financial services for SMEs.
In the meantime, with more knowledge and experience accumulated during its deals with SMEs, small and medium-sized financial institutions can provide multi-level services for SMEs.
While these institutions are the lifeline of SMEs, their survival depends on the development of SMEs. With limited funds, small and medium-sized banks are often incapable of sponsoring big projects or lending to big enterprises. Targeting SMEs can better help the institutions to disperse risks.
Thus, the small and medium-sized financial institutions can help stabilize the financial sector when they cater to SMEs.
Serving for SMEs can also better prepare small institutions for challenges that crop up with China's pending accession to the World Trade Organization (WTO), the article said.
SMEs have big growth potential. They have structural, institutional, and managerial advantages. Many of them are new and high-tech enterprises. It is expected that they will be the most agile and competitive player in the market after China's entry into WTO, the article said.
Thus, it is important for those financial institutions with stable relationships and experience in dealing with SMEs to continue to target them. This will help them to ward off threats coming from their foreign counterparts in the near future.
However, to help small and medium-sized financial institutions and enterprises develop in tandem, there is still much work to be done on both sides.
From the perspective of the enterprises, they should strive to mend their traditional image of lacking credit sense. It will fundamentally help them raise more funds.
The most urgent step is to restructure their management system and establish a modern corporate structure in line with the market economy.
They should also improve their product structure with varying market demands. This will show their vitality and development prospects that will help them win trust from creditors and investors.
To withstand the fierce market competition, they should also depend on technological innovation to develop high-quality, value-added and marketable products.
To win confidence from the creditors and investors, SMEs need to regulate and improve their corporate financial system.
If they can regularly deliver accurate and comprehensive financial statements to relevant banks, they can better meet banks' terms for loans and raise their credit ratings.
On the other hand, the financial institutions should also improve their performance.
After assessing the financial risks, they should try to offer credit for SMEs, especially those in the high-tech sector. The credit appraisal system for SMEs should be different from that of big enterprises. The banks can inform well-performed SMEs of their credit quotas which will enable them to map out the budget in advance and more effectively use the funds coming later.
Besides loan support, the supplementary finance service will also enable the banks to keep in touch with SMEs and have a good knowledge of their operation.
Small and medium-sized financial institutions can open clearance service for SMEs. With the expansion of the computer network, they can develop new services like credit card and auto-clearance and financial consultations to SMEs.
They can help enterprises set the loan volume, design the loan structure, and assess the project, which would also help the banks to monitor the operation of loans.
It is also vital for them to constantly update their service and sharpen their competitive edge to keep their grip on the market.
All the above measures will significantly reduce the financial risks involved in their business, the article said.
(China Daily 07/13/2001)
