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Bank for SMEs eyed to ease cash bottleneck

The mainland might set side 10 billion yuan (HK$11.35 billion) to launch a bank for small and medium-sized enterprises to cushion the impact of the global financial turmoil, among various other funding plans, Xinhua said yesterday.

'Upon its establishment, the bank will provide loans only for [SMEs]. Companies may get as much as 5 million yuan each for their investment and development,' Xinhua quoted China Association of Small and Medium Enterprises head Li Zibin as saying, without specifying when the bank would open.

Any industrial firm with revenues up to 300 million yuan would be eligible for assistance from the fund and the bank, Mr Li said.

The association, an agency affiliated with the National Development and Reform Commission, would initiate a 3 billion yuan venture capital fund to help the country's SMEs raise capital by the end of the year, Xinhua reported.

Together with the Liaoning provincial government, the association was also planning a scheme to jointly issue an unspecified amount of corporate bonds to unblock the capital bottleneck affecting SMEs, Xinhua added.

Economists and analysts gave a thumbs-up to the planned policies, believing they will help create more jobs and prevent the mainland economy from a sharp slowdown. 'The intention of the new policies is very clear - the Chinese government wishes to clear up the bottleneck vexing capital-raising activities for SMEs,' said Huang Yiping, chief Asia economist at Citigroup Hong Kong.

Although SMEs contribute more than 60 per cent of the country's economic output and provide about 80 per cent of the jobs, they get barely 10 per cent of total lending from state-owned commercial banks.

Commercial banks usually shun SMEs for their high operational risks and a lack of reliable guarantees for the loans.

'The new policies are really timely and well-targeted,' said Yuan Gangming, an economist at the Chinese Academy of Social Sciences. '[These policies] are very direct in creating jobs and therefore improving people's welfare, which is something China desperately needs for the time being.'

Xinhua said 67,000 SMEs, with sales exceeding 5 million yuan, closed down in the first half of the year owing to the economic slowdown and a tight monetary policy.

However, experts are unsure whether the planned bank for SMEs would get off the ground.

'The issue has been talked about for years, and I'm not optimistic about the chances of its really being done this time,' said Mr Yuan.

Pillar of growth

SMEs' contribution to the nation's economic output is more than: 60%

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