Long-neglected SMEs dubious of promised policy overhaul

PUBLISHED : Sunday, 24 July, 2011, 12:00am
UPDATED : Sunday, 24 July, 2011, 12:00am


In what might otherwise have been hailed as big news, a State Council announcement on Thursday that it was 'actively preparing' to set up a task force to work out policy incentives for small and medium-sized enterprises was met with relative apathy.

Despite the vast majority of the nation's urban jobs coming from SMEs, few such companies are hopeful that the new effort will make much of a difference - perhaps because, for at least a decade, 'support for SMEs' has been a hackneyed government slogan, while few citizens have seen the kind of change they called for.

A spokesman for the Ministry of Industry and Information Technology (MIIT) made the announcement, and it seemed to confirm rumours first heard in Shanghai this month that the central government was going to make deep cuts in the tax burdens and administrative fees facing SMEs.

But if the government is hoping to make a real difference, it faces a daunting task. A survey released in the past week found that SMEs in 17 provinces, municipalities and autonomous regions were reporting even greater hardships than they faced in 2008 at the outbreak of the global recession.

The All-China Federation of Industry and Commerce, which conducted the survey, noted that overseas demand was low in 2008 but supply of domestic credit was ample. Now, while overseas demand still has not fully picked up, domestic credit has run dry.

Reporting on the survey, financial news portal Hexun.com also ran a small survey of its own, asking online users whether they agreed with the findings.

About 84 per cent of respondents said SMEs were indeed worse off. Only 10 per cent said the opposite, and the rest weren't sure.

Meanwhile, the MIIT spokesman denied reports that a wave of SME bankruptcies was sweeping Guangdong. But he did admit that 'some' SMEs were in a dire situation, and they need 'policy-level' help with taxes and other finances.

A column on Caijing.com, an investment information site related to Caijing magazine, didn't pull any punches, saying that SMEs were scapegoats for the government's policies. It said tightening the overall money supply was a necessary move to improve the health of the economy, but that should not come at the sacrifice of SMEs.

Continued deterioration of their financial situations could result in a large number of SME bankruptcies in the second half of the year, the commentary warned.

In the Guangzhou-based Southern Weekend newspaper, an analysis attributed SMEs' financial woes to a monopoly in the state sector, saying that while the non-state sector accounts for more than 70 per cent of growth in gross domestic product, it has not received even 20 per cent of bank loans in the past decade or so.

In Chongqing, the volume of local high-interest loans issued in 2009 totalled about 30 billion yuan, or about one-third of the city's revenue. And the source of much of that money could be traced to state institutions that used their bank borrowings to operate their own usury business.

A recent commentary in China Entrepreneur magazine noted that not only do SMEs provide more than 80 per cent of urban jobs, they provide the main channel for social mobility in today's China.

SMEs, it said, are where people create and realise their dreams, and Chinese dreams were as important in China as 'the American dream' was for people in the United States.

They generate social stability, hope and progress. In the initial years of economic reform, these dreams used to be so real. So, the commentary appealed, please treat our SMEs well, for the sake of keeping our Chinese dreams.

To help China's SMEs in reality, economic-policy commentators say, one important step would be to provide access for non-state-sector players to the banking and credit business, so that part of the shadow banking business can be legalised, making it easier to manage for the lenders, borrowers and regulators.

But perhaps an easier and quicker step would be to cut some taxes and fees, the commentators argue.

Since government income increased 31.2 per cent year on year in the first half of 2011, said an editorial in the China Economic Herald newspaper, why does the government have to keep making money like this? Come on, it said, make some tax cuts for the SMEs.