December 05, 2011 00:00
By Suwatchai Songwanich
The China Banking Regulatory Commission (CRBC) recently implemented a range of measures to encourage banks to lend more to small and micro-sized enterprises, which in September accounted for 28 per cent (14.75 trillion yuan or $2.32 trillion) of all outst
Shang Fulin, the newly-appointed chairman of the CBRC, recently revealed a series of policies to support the development of small and micro-sized companies – including a detailed plan encouraging commercial banks to give more support to enterprises that borrow less than 5 million yuan ($731,000) and increase their tolerance for non-performing loans to small and micro-sized firms.
Until now, lending and financial loan policy has been focused on larger businesses, with this segment leading growth and benefits trickling-down for smaller suppliers and businesses supporting the wider financial system.
In a recent visit to Zhejiang province, Premier Wen Jiabao said small businesses should be a priority for bank credit support and enjoy more preferential tax policies.
It’s no wonder these moves have support from the top – according to the Ministry of Industry and Information Technology’s SME Department, SMEs generate two-thirds of China’s industrial output, pay half of the country’s tax revenues, and employ 80 per cent of China’s workers.
However, despite these overwhelming statistics, higher wages, rising raw material costs and the appreciating currency have put many small and medium-sized businesses under extreme financial pressure. Many have had to seek loans from unlicensed and unregulated lenders, often at high interest rates and with strict conditions.
Greater access to loans will produce benefits across most industries. Specifically, I believe the agricultural sector will begin to flourish, as better loan access will help them become more efficient through the purchase of new technologies and farming materials. City-based entrepreneurs will be able to get small loans to build websites and sales platforms, giving them the ability to sell to people in China and overseas. I believe we will also see growth in consultancies and online business, with experts now able to leave their jobs to start their own business and sell their expertise.
Further helping the cause, China is also moving to include private lending in the official financial system, with private lending legalized for the first time. The move is expected to better regulate unlicensed loan practices such as loan sharking, as well as increase financial support for the agriculture sector and smaller enterprises.
What will this policy shift mean for businesses in Thailand? While Thai businesses will certainly face more competition, there will also be tremendous opportunities, with the ability to partner with agile and efficient new businesses in China.
One true measure of positive commercial expansion for any maturing market is the ability of its citizens to start, build and maintain businesses. I believe these new measures will bring a renaissance of entrepreneurial freedom and growth, and offer great opportunity for collaboration with businesses based in Thailand.
For more columns in this series please see www.bangkokbank.com