Fund proposal drafted for private sector core

PUBLISHED : Wednesday, 20 February, 2002, 12:00am
UPDATED : Wednesday, 20 February, 2002, 12:00am

Beijing is considering setting up a fund to bolster the small and medium-sized enterprises that make up the bulk of the private sector.

Under proposals submitted to the Standing Committee of the National People's Congress, the Government will earmark part of the national budget to provide these businesses with credit guarantees, consultation and training.

The proposals are part of the Government's recent attempts to stimulate the private sector, which was previously ignored or discouraged under the hardline communist regime.

In 1999, the state gave the sector constitutional recognition, removing political risk from the running of private businesses.

In July last year, President Jiang Zemin reassured private businessmen by allowing them to join the Communist Party.

The draft of the relevant support legislation for small and medium-sized enterprises had been submitted to the Standing Committee for preliminary reading, the China Daily reported.

An official with the Financial and Economic Committee under the National People's Congress was quoted in the paper as saying that the draft included provisions on the establishment of 'credit guarantee institutions' to lower the credit risks of banks and encourage financial institutions to increase loans to small and medium enterprises.

The move aims to lower the barrier for their fuller development, as they have been facing difficulties getting loans to expand and upgrade technology.

Banks have been unwilling to lend to small and medium enterprises, which they associate with higher risk.

The temporary suspension of the launch of a second board for high-technology or high-growth start-ups has also limited their access to funding.

Zeng Xialin, vice-director of the committee, said in the China Daily report that the companies were disadvantaged when competing with large enterprises, which are mostly state owned, for professionals and accessing information.

Analysts said the Government intended to create a more balanced economic structure to fit in an increasingly open and market-oriented economy.

'Small and medium-sized private enterprises are playing a pivotal role in advanced overseas economies,' one said.

However, Morgan Stanley chief economist Andy Xie Guoshong said the measures would need more than easier access to loans at preferential rates to be effective.

'It will also call for infrastructural support such as a government-invested industrial park,' Mr Xie said, citing Taiwan.

Last year, the mainland's nine million small and medium sized enterprises accounted for 95 per cent of domestic enterprises, and contributed about half of the non-agricultural output and 40 per cent of gross domestic product.

These firms offered 75 per cent of urban jobs by hiring more than 230 million migrant workers from rural areas between 1976 and last year, the committee said.