Chinese SMEs get funding aid
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Recognising that small businesses find it hard to get affordable funding, the Chinese government is encouraging the formation of new banks to focus on lending to this sector. Early this month, the first trial loan was advanced by one of these banks, and f
The government wants the private sector to help fund small businesses, which receive almost no funding from the big state-owned banks. Small and Medium-sized enterprises (SMEs) are almost as important to China’s economy as they are to Thailand’s, accounting for about 60 per cent of gross domestic product and 75 per cent of new jobs, but they usually have to borrow outside the banking system and as a result pay interest rates that can be up to four times higher than those offered by mainstream lenders.
WeBank, the first new bank to make a loan, is based in Shenzhen and is 30 per cent owned by Hong Kong-listed Internet group Tencent. An online lender, it will be able to tap into half a billion monthly active users of its messaging platform to attract customers. It expects most of its loans to be under RMB 1 million ($160,000).
The Alibaba affiliate is based in the prosperous east coast city of Hangzhou, where Alibaba is headquartered.
The new entity, Zhejiang Internet Commerce Bank, is a partnership with Fosun International, one of China’s biggest private conglomerates, and as the name suggests, it will also be an online lender – not just to SMEs, but also to individual consumers.
Among the other licence holders are new banks backed by investor groups in Tianjin and Wenzhou, and a group led by airline operator JuneYao Group.
Clearly, all these investors believe they can make money out of lending to SMEs. However, observers caution that they will need to be wary of loan quality, which tends to be lower for small businesses. For example, an analyst’s report cites privately owned Minsheng Bank’s loan book – a quarter of which is exposed to SMEs – as having had one of the worst increases in bad loans in 2014.
Some Chinese economists also caution that the creation of the new banks won’t be an easy-fix for SME’s funding problems. They argue that eliminating the cap on bank-deposit rates, which apply to both state-owned and private banks, may ultimately be more effective at channelling funds to under-served borrowers.
Time will tell, but the programme is off to a strong start, with the initial licence holders including some prominent business names, and Premier Li Keqiang symbolically issuing the first loan on behalf of WeBank – a RMB 35,000 ($5,600) loan to a truck driver.
With a lot of discussion currently taking place in Thailand about the special needs of small-business funding, China’s progress will be followed with great interest.
