NEW BOON: On October 30, 2009, the first 28 enterprises are listed on the ChiNext, a board for growth enterprises at the Shenzhen Stock Exchange. The board will be another fund-raising platform for SMEs (PENG YONG)

Spanning almost every industry, from mining and construction to hi-tech and public services, small and medium-sized enterprises (SMEs), which account for 99 percent of the total number of enterprises in China, provided 80 percent of all jobs, contributed 50 percent of the country's total tax revenue, and generated 60 percent of the country's GDP in 2009.

SMEs refer to enterprises whose annual business revenue is below 300 million yuan ($44 million), with the exception of retail and hospitality industries, of which the maximum annual business revenue is 150 million yuan ($22 million). Despite their impact on the Chinese economy, SMEs have not gained the proportional support required to endure the difficulties of current economic times.

Since the onset of the financial crisis, problems that plagued the development of SMEs, such as financing difficulties, were only intensified. SMEs witnessed a dramatic decline in profits, especially during the first two months of last year, said Li Yizhong, Minister of Industry and Information Technology, at a meeting on SMEs held on December 24 in Beijing.

With a series of macroeconomic adjustment and stimulus packages in place, SMEs realized an increase in profits and taxes of 1.6 percent and 10.4 percent, respectively, in the first eight months last year, Li said.

This year, the country will step up financial, fiscal and tax-related support to boost the development of SMEs, Li said.

More financing channels

"The financing difficulty has been a problem hanging over Chinese SMEs for years. First of all, many SMEs don't possess their own fixed assets as a gauge for loans. Secondly, SMEs are weak in credit consciousness and the guarantee institutions are not willing to vouch for them. SMEs are also less desirable customers for the profit-oriented commercial banks compared with those that borrow larger amounts," said Wang Hongling, a researcher with the Institute of Economics at the Chinese Academy of Social Sciences to People's Daily.

Yin Zhongqing, a member of the Financial and Economic Affairs Committee of the 11th National People's Congress, said about 30 percent of SMEs rated financing difficulties as the top barrier to development.

The financing problems for SMEs, Li said, are plentiful: loans for SMEs accounted for a meager ratio of total loans; loan pledges for SMEs have been limited to property; banks that operate exclusively for small and medium-sized banks are still lagging behind larger banks; and the capital market is not mature enough to provide diversified financing services for SMEs.

As a response, the government has taken immediate action through generous tax cuts to boost to their financing to alleviate the funding stresses weighing down on budding SMEs.

In the first three quarters of 2009, loans for small enterprises increased 26.98 percent compared with the beginning of last year, 1.87 percentage points higher than the total loan growth, meeting the goal set by the government.

Li said the government also made considerable improvements to the SME credit guarantee system. It is estimated that China had established more than 4,800 guarantee institutions for SMEs by the end of 2009, providing guarantees for loans worth 2.6 trillion yuan ($382.3 billion) to more than 1.15 million SMEs.

Meanwhile, to date, the SME board at the Shenzhen Stock Exchange, established in May 2004, has raised about 120.3 billion yuan ($17.7 billion) for the 306 listed SMEs. ChiNext, China's growth enterprise board launched last October, acquired funds worth 15.5 billion yuan ($2.3 billion) for the first 28 ChiNext listed enterprises.

Despite the multiple attempts and efforts to alleviate financial stresses, it is still too early to tell whether the bottleneck choking SMEs' development is under control. The SMEs, especially smaller enterprises, still face serious shortages involving financing.

According to the People's Bank of China, the central bank, new loans to SMEs totaled 3.08 trillion yuan ($451 billion) in the first nine months of 2009, accounting for 45 percent of new corporate loans. But the proportion was 52 percent in 2008. Loans to small enterprises accounted for just 8.5 percent of the 7.37-trillion-yuan ($1.1 trillion) new bank loans in the first half of 2009.