"Banks are more inclined to lend to heavy-asset companies that have collateral. But as the Chinese economy embarks on its overall restructuring, it has become all the more necessary and urgent to support emerging strategic and innovation-intensive industries, which are not favored by banks because they don't have assets to use as collateral. That's why private equity investment will be more and more important in the coming decade," said Shan.

Hao Yansu, Dean of the School of Insurance at the Central University of Finance and Economics, said the government can use tax rebates and subsidy to encourage insurance companies to develop loan guarantee insurance, which commercial banks can purchase to hedge the risks in lending to small and micro businesses. "This can help channel credit resources to them," Hao said.

Digging deeper

Yi said the 10-point guideline offers some technical solutions to the financing difficulties of SMEs, such as targeted easing, allowing the establishment of private banks and reducing financing links.

However, he has his reservations. "These technical solutions can only have very limited impact," Yi said. "To solve the cause of the problem, the government should refrain from too much intervention in financial markets and curb speculation in the property sector in order to channel funds to the real economy."

"If these two deep-seated problems are not solved and the government makes changes solely by using technical adjustments, things will only get worse and worse," Yi predicted.

"SOEs and government-backed projects have been occupying too many resources for a long time," said Lu. "Reform on SOEs should be launched as soon as possible to break up the kind of unfairness private companies and small and micro businesses are facing. Only by doing so can credit flow to private capital with lower costs."

The ICBC source told Beijing Review that the bank recently started using intellectual property as collateral in lending to cultural and IT companies in Beijing.

"But a market for the evaluation and selling of intellectual property has yet to be established. It's all in the initial phases. Using intellectual property as collateral can get you 5 million yuan ($814,292) in loans tops," he said.

Zhao, Managing Director of EBO Digital Technology, thinks it's a good idea. "At the end of the day, what matters most are people's intellectual resources, rather than factories," Zhao said.

Email us at: zhouxiaoyan@bjreview.com

The 10-Point Guideline on Lowering Financing Costs for Businesses

(In brackets are the departments responsible)

- Maintaining reasonable credit growth (PBC)

- Curbing irrational rise of funding costs among financial institutions

(PBC, CBRC, CSRC, CIRC and MIIT)

- Eliminating redundant financing procedures for businesses

(PBC, CBRC, CSRC, CIRC and SAFE)

- Canceling unreasonable charges for financial services

(CBRC and NDRC)

- Improving loan approval efficiency

(CBRC and PBC)

- Improving the evaluation system for commercial bank performance

(CBRC and MOF)

- Speeding up the development of small and medium-sized financial institutions.

- Encouraging qualified private capital to set up small and medium-sized banks 

(CBRC)

- Boosting the development of direct financing

- Improving a multi-layer capital market and accelerating the development of private equity and venture capital investment, and lowering the threshold for financial bonds issued by small and micro businesses and agriculture-related businesses

(CSRC, PBC, NDRC, MOF, CBRC and CIRC)

- Promoting the roles of insurance and guarantees

Increasing fiscal support to financing assurance for small and micro businesses and developing government-backed guarantee institutions to offer better guarantee services to small and micro businesses

(CIRC, MOF, CBRC and MIIT)

- Promoting the market-oriented reform on interest rate

(PBC)

PBC: People's Bank of China

CBRC: China Banking Regulatory Commission

CSRC: China Securities Regulatory Commission

CIRC: China Insurance Regulatory Commission

MIIT: Ministry of Industry and Information Technology

SAFE: State Administration of Foreign Exchange

NDRC: National Development and Reform Commission

MOF: Ministry of Finance

(Source: China's State Council)

SMEs in China

SMEs are the most dynamic driving force of the Chinese economy, with irreplaceable functions in promoting growth, pushing forward innovation, adding to tax revenue and creating jobs.

SMEs, accounting for 99 percent of all registered companies, contribute to 50 percent of China's tax revenue, 60 percent of the GDP, 70 percent of the patents for invention and provide 80 percent of urban jobs.

(Source: Ministry of Industry and Information Technology)