Compliance News / Compliance

China Focuses on Small Business Financing

Loan Growth Rate should Match that for Larger Companies

July 17, 2013
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China wants to improve financial services for small and micro-sized businesses, allowing them access to services similar to those of larger firms. Those firms account for 60 percent of China’s gross domestic products and half its total tax revenue, but receive only slightly more than 20 percent of the country’s loans.

Specifically, China wants to ensure that the growth rate of loans to its smallest businesses is commensurate to that of the total lending from commercial banks, and no less than last year’s increase. Chinese Vice Premier Ma Kai Ma recently encouraged commercial banks to be innovative in providing tailor-made services for small businesses and to enhance information services for those companies. He also called for developing small financial institutions, lowering financing costs and improving policy support for small businesses. At a meeting Monday, he said, "Financial services for small and micro-sized enterprises have been constantly improving in recent years, but it still lags far behind the development needs of those companies," according to China’s state news agency, Xinhua.

Access to financing is seen as a major factor in economic development, enabling companies to grow and attract international trade and investment. It also may open the Chinese services industry a fraction, increasing the potential for eventual involvement for international financial institutions. 

China is trying to revamp its financial system as it flirts with internationalizing its currently and allowing the development of local banks. Meanwhile it is trying to boost an economy whose growth rate fell to 7.5 percent this quarter, down from 7.7 percent during the first quarter of 2013. The goal is to stimulate growth through consumption. 

In June, China’s central bank withheld money from the interbank market in an attempt to slow credit growth as it attempts to develop an economy less reliant upon government financing. The move spiked short term credit rates in June from the usual 3 to 4 percent range to a high of 11 percent before the bank rethought its position and rates fell to about 4 percent. 

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