Tianjin seeks to build on test-bed status in filling the gap in funding needs

PUBLISHED : Monday, 01 October, 2007, 12:00am
UPDATED : Monday, 01 October, 2007, 12:00am

With ambitions to transform itself into a national financial centre, Tianjin is turning to a long-overlooked part of the mainland economy - private equity investment.

While cash-rich investors have pushed up the stock and property markets to dizzying levels, small and medium-sized enterprises are struggling to secure bank loans because of a lack of credit history.

This gap gives the city a chance to build a national private equity market and funnel excess liquidity to where it is needed, according to Chen Zongsheng, vice secretary-general of the Tianjin municipal government.

'This is a unique opportunity for us to allow mainland enterprises to seek direct financing from private investors,' Mr Chen said.

Tianjin hosted an international private equity investment forum in June, bringing in 207 mostly overseas private funds to discuss direct financing with SMEs.

The State Council has designated the city's Binhai New Area as an experimental zone for financial reform with the goal of transforming the district into the mainland's third economic powerhouse after Shenzhen and Shanghai.

Tianjin has been selected as the trial location for the so-called through train scheme under which mainland investors will be allowed to buy Hong Kong stocks directly.

Tianjin also helped set up the first yuan investment fund, the Bohai Industrial Fund, in December.

But pilot schemes alone will not be enough to build the city into a regional financial centre. The State Council has not offered the kind of tax rebates and subsidies that Shenzhen and Shanghai Pudong received in the earlier years of their development.

Deng Xiangrong, an economics professor at Tianjin's Nankai University, said the port city would have to build up its financial strength to match its ambitions.

'There is roughly 2.9 trillion yuan of private capital in China looking for ways to invest,' she said. 'If Tianjin can create the policy environment and lure investors to small and medium-sized enterprises, the market potential should be huge both for Tianjin and the whole country.'

Ms Deng said clearing the hurdles for private capital to enter the market remained a big question because many funds had stayed below the government's radar.

'The Tianjin government has to work creatively to figure out a way to allow legal investment but at the same time be alert to money laundering,' she said.

Xie Siquan, associate director of the Nankai Institute of Economics, said Tianjin should create its own niche and take advantage of the lack of substantial assistance available to SMEs.

'The pilot theme is like a brand and Tianjin should push that status to the limit to take advantage of this,' said Professor Xie, who notes that the city has more than 1,000 square kilometres of undeveloped land.