Help on loan interest for hard-hit SMEs

PUBLISHED : Tuesday, 29 June, 2010, 12:00am
UPDATED : Tuesday, 29 June, 2010, 12:00am

Beijing has launched a fund to pay interest on loans taken out by small and medium-sized enterprises hard hit by the global economic downturn.

The Ministry of Finance said the government would cover interest payments of up to three million yuan (HK$3.4 million) over two years.

The maximum interest subsidy is equivalent to the benchmark lending rate set by the People's Bank of China. However, as most SMEs pay a higher rate, they are still likely to have to shoulder some of the cost.

The subsidies will be handed out for interest on loans for technology innovation and commercialisation, emission reduction and energy conservation, product design and intellectual property protection.

The ministry said eligible companies would be those operating in 'distinguished local industry clusters'. It did not mention how much money it had set aside for the fund.

Provincial and autonomous region governments will submit plans to the ministry listing companies recommended for the subsidies.

The interest-free-loan programme is part of broader policies to support SMEs, which numbered 10.23 million at the end of last September, according to the Ministry of Industry and Information Technology. They accounted for 99 per cent of the mainland's enterprises.

Providing 80 per cent of jobs in urban areas, SMEs are responsible for 60 per cent of the mainland's domestic economic output and half of its tax income.

The versatility of SMEs has seen them move into the manufacturing, transportation, trading and logistics sectors as well as infrastructure, utilities and high-technology industries. But the 2008 financial turmoil hit them particularly hard.

Last year, Beijing raised the amount of special-purpose funds to support the sector to 10.89 billion yuan from 4.99 billion yuan in 2008 and allocated three billion yuan to fund SME technology-upgrading projects. This year, it has also cut by half corporate income tax payments for SMEs whose pre-reduction taxes payable were less than 30,000 yuan.

Other measures include cancellation of 100 types of government charges on SMEs, amounting to 36 billion yuan.

The China Banking Regulatory Commission has also ordered commercial banks to lend more to the sector.

Last year, the growth rate of total new loans granted to SMEs exceeded that of total corporate loans by 5.5 percentage points, while the proportion of outstanding loans to SMEs in a bank's loan book rose 1 percentage point from last year.

Zhou Dunren, an economics professor at Shanghai's Fudan University, said the interest subsidy looked like a good programme, but it would take time for the impact to be felt.

'Three million yuan in interest subsidy is quite a big sum for an SME, especially for start-ups,' he said. 'But how many companies will qualify and how much money will be doled out? We would need to see whether it will amount to a critical mass.'