Small and medium-sized enterprises (SMEs) in Hong Kong and the mainland could feel the impact of the economic crisis in Europe and the United States when it comes to borrowing. Although some analysts say economies in Asia are stable, the central government is putting a lot of effort into curbing credit growth. Deals and businesses in the pipeline are getting postponed and, with the volatility in the market, sovereign debt issues in Europe and growing economic concerns in the United States, it will continue to cause difficulties for companies who plan to raise extra cash. Investment banks have become more apprehensive and they're warning businesses to be more cautious about raising money from the marketplace. Richard Dawson, Asian head of debt advisory at KPMG China, says: 'In Asia, there's liquidity available and there is slightly less volatility, but we're going to see deals withdrawn or held over until we see a less volatile period, particularly in G3 currencies [US dollar, euro and yen]'. It is mainly larger organisations going through the debt market and it is the SMEs that are facing difficulties when it comes to borrowing. Smaller companies have to find other ways to raise funds and this could be from third-party funds, credit funds, hedge funds and trust companies rather than through the debt market. When it comes to expansion or small acquisitions, it is becoming more difficult for the smaller companies to find funding as liquidity is getting tighter on the mainland, and advisers say that companies will begin to struggle due to the potential slowdown in financing and the debt woes in Europe and the US. 'What the Chinese [central] government is doing is restricting the amount of growth from banks' borrow sheets, that is about slowing the growth of money in the money supply,' says Keith Pogson, Ernst & Young's Asia-Pacific financial services leader. The main concern for the central government is controlling inflation and tightening credit. Although corporate earnings are doing well, there is still a strong demand for new companies on the mainland to expand their business. PricewaterhouseCoopers (PwC) partner Richard Sun says: 'I think what the central government needs to do is [to] try to [find a] balance, because it needs to maintain a satisfactory GDP growth while, at the same time, what it worries [about] most is inflation.' Some corporates on the mainland are finding it difficult to borrow from banks, especially long-term loans. In some cases, only short-term loans of two to three months are available, making it difficult for corporates to get the funding to expand their business domestically and internationally. The companies are worried that the European debt crisis and slowing growth in the US will be reflected in China's exports and will impact on Asia's ability to expand and lead to a slowdown. Sun says the mainland has embarked on a strategy to stimulate internal and domestic consumption that should help balance growth in the economy. Dawson says there are opportunities for big Chinese names to go overseas. 'In the US and Europe, there are corporates with good underlying health, but they may encounter problems because of liquidity, local banks and local markets not being as strong as they were. Therefore, there may be opportunities for large Chinese names and other big corporates across Asia to look at acquisitions in Europe and the US.' PwC suggests the way is for Hong Kong to concentrate on offshore yuan centres to help Beijing ease credit, as more corporates on the mainland try and raise yuan bonds in Hong Kong. This could be a way for the market to grow in Hong Kong and also gives the city a chance to develop offshore yuan centres to help China expand.