Small business support

Updated: 2011-07-25 07:52

(China Daily)

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A reported wave of bankruptcies among China's small businesses was officially declared untrue last week.

Such a belated rumor buster is barely reassuring. The fact that such enterprises are not going bust in large numbers does not amount to valid proof that conditions are not worsening rapidly for these job-creating businesses.

If the country's small and media-sized enterprises (SMEs) are to survive the double whammy of rising costs and cash shortages caused by monetary tightening, policymakers need to come to their aid quickly.

With limited access to bank loans, China's small businesses have managed to contribute roughly 60 percent of the country's industrial output and more than 70 percent of urban employment.

Admittedly, lack of proper financing support for SMEs is a modern banking problem in almost every country and, as the spokesman for the Ministry of Industry and Information Technology pointed out on Thursday, it is natural that some enterprises might die and new ones appear.

However, it is quite another thing to conclude that the difficulties faced by China's small businesses are a normal phenomenon determined by the rules that govern market economies.

Typically, the smaller size of SMEs should allow them to capitalize on their greater flexibility and adaptability compared to larger companies.

Yet, riding on a 9.6-percent growth of the world's second largest economy, the country's State-owned enterprises (SOEs), mostly big ones, made an aggregate profit of 1.12 trillion yuan ($174 billion) in the first six months of this year, up 22.3 percent year-on-year, while small Chinese businesses are struggling with the rumor of their mass demise.

One reason why some SMEs have been pushed to the brink of bankruptcy is the stubborn rise in the cost of labor and raw materials fueled by inflationary pressures.

Rather than a normal business cycle, the current round of soaring inflation that policymakers have vowed to tame has a lot to do with the flood of liquidity that the country rallied in order to counter the 2008 global financial and economic crisis, a credit binge that was enjoyed by the large State firms.

Another source of difficulties for small businesses nowadays comes from the intensifying monetary tightening that has so far only symbolically raised the benchmark lending interest rate, a privilege that banks basically preserve for large SOEs.

Small businesses may not look good to commercial lenders who have to cover the extra risks associated with these clients with higher interest rates. But the country cannot afford to turn a blind eye to the disproportionate pain SMEs are suffering from the ongoing monetary tightening. More policy support is badly needed to save small businesses for the long-term health of the Chinese economy.

(China Daily 07/25/2011 page8)


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