Lack of financing support from big banks is a major obstacle for small enterprises trying to upgrade production and expand into new markets in today's challenging market conditions, a government survey shows.
The study released yesterday at the Boao Forum for Asia shows new and small businesses on the mainland were hit hard last year by the slowing economy and rising costs of labour, raw materials and fundraising.
Nearly one third of 1,000 companies surveyed said their profits fell in the first three quarters of last year, while 27 per cent said their profit remained the same as the previous year. Only 44 per cent said orders had increased from the year earlier.
To survive the severe market conditions, more than 40 per cent considered expanding to other industries and about a quarter planned to upgrade their plant or create their own brands.
Bank loans were considered the primary source of external financing to achieve these plans.
But it's also regarded as the most costly form of borrowing compared to small-loan companies, underground banks or guarantors.
"Although banks are charging relatively low interest rates, they often include many 'invisible conditions' for borrowers, such as asking them to purchase wealth management products or deposit certain sums of money in the banks," said Ba Shusong, a financial researcher with the Development Research Centre of the State Council.
None of the enterprises surveyed had assets worth more than 80 million yuan (HK$100 million), and nearly 70 per cent had sales of less than 2 million yuan a year. Businesses that had been operating between one and three years and with assets of 1 to 3 million yuan complained the most about their difficulties in obtaining bank loans, the survey found.
Newer and smaller companies tended to borrow from relatives and friends.
The People's Bank of China lowered its lending rate twice, in June and July last year, as part of the effort to stimulate investment as the economy slowed.
However, two-thirds of these "small and micro-enterprises" said the move did little to ease their fund-raising costs.
"A major problem is that small companies often lack collateral as they don't have big fixed assets," Ba said. "On the other hand, it's hard to assess their risk as many of them also lack adequate credit histories."