China’s New Initiatives Help Small Businesses Thrive and Innovate
In the bustling region of Anhui Province in eastern China, a mechanical manufacturing company recently found relief as it applied for a loan renewal just before its current loan matured. By opting for a deferred principal repayment, the company eased its short-term cash flow pressures and could focus on its day-to-day operations.
“The loan renewal terms, including the interest rate and repayment structure, are relatively flexible,” said Zhang Jinzhi, a representative of the company. “When our loan was about to expire, we applied for an extension with deferred principal repayment, which alleviated our liquidity pressures.”
This experience reflects a broader national strategy by the Chinese government to support small and medium-sized enterprises (SMEs). This year, various initiatives have been rolled out to ease the financial burdens on businesses. One significant policy is the principal-deferral loan renewal, initially introduced for micro-enterprises and later expanded to include SMEs, helping them maintain operations during challenging times.
Beyond loan renewals, the government has introduced other financial support measures, including a 100 billion yuan (approximately $13.8 million) re-loan scheme targeted at start-ups and tech-focused SMEs. Financial institutions are encouraged to reduce service fees and offer more flexible repayment terms. By September 2024, major commercial banks had increased the total loan balance for small and micro-businesses by 2.2 trillion yuan.
“Though it takes time for national policies to be implemented by banks, the option for loan extension with deferred principal repayment directly supports our operations,” said Hu Dongchen, co-founder and CFO of Syi Tsing Energy Tech, a start-up specializing in energy storage networks. “We value stability and consistency in policies.”
The government’s support doesn’t stop at financial aid. There’s a strong push to encourage innovation within the private sector. In Zhejiang Province, local authorities have compiled over 260 research and development challenges from 225 private manufacturing firms. These challenges, ranging from low-voltage circuit breakers to new polymer materials, are being tackled through collaborations between businesses and research institutions.
Local governments are also fostering partnerships between universities and smaller enterprises. For instance, 22 PhD and master’s students from Wenzhou University are working with local companies to solve technical challenges in the electrical and new energy sectors.
These efforts aim to boost technological advancement in the private sector. As of September 2024, China had over 180 million private businesses, making up more than 96% of all businesses in the country. This growth is especially notable in industries like new energy vehicles, integrated circuits, and 3D printing, where private businesses now account for over 20% of total production.
To further support these industries, the government has simplified regulations to create a more business-friendly environment. In late September, the Political Bureau of the Communist Party of China analyzed the economic situation and announced plans to standardize regulations affecting enterprises and promote laws supporting the private sector. These measures aim to enhance legal protections and create a more favorable business climate for private companies.
“Law enforcement should be fair, and the rule of law should be improved so that businesses can focus on enhancing their operations and governance, ultimately creating profits and providing better returns for investors,” said Tian Xuan, dean of the National Institute of Financial Research at Tsinghua University.
In October, additional steps were taken to enhance government support, including policies to improve financing access, foster innovation, and create a fairer market environment. Financial institutions are being encouraged to provide greater support for small and micro-enterprises, and a comprehensive financing system is being developed to secure an additional 300 billion yuan in credit approvals annually.
China is also promoting greater collaboration between private enterprises and state-run research facilities. By opening up important research infrastructure and encouraging private companies to participate in major national scientific projects, the country aims to foster innovation.
“Participating in a national-level nuclear power project is something we never imagined; it truly exceeds our expectations as a private enterprise,” said Xu Liang, deputy general manager of a photovoltaic company that recently ventured into the nuclear power sector. His company, along with China General Nuclear Power Group and other stakeholders, signed a framework cooperation agreement.
“The share transfer process from the original investors to us was efficient and smooth,” Xu added. “The government is taking concrete steps to open up market access for private companies in sectors we hadn’t previously entered.”
Additionally, the Chinese government is streamlining communication between businesses and regulatory bodies. Since June 2023, seven channels for regular communication with private enterprises have been established, covering over 600 businesses across various industries. This initiative allows the government to better understand the challenges facing the private sector and address issues more efficiently.
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China's initiatives for SMEs boost access to finance, fuel innovation
cgtn.com
