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China Bolsters Support for SMEs

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Small and micro-sized enterprises (SMEs) are receiving a boost from the government of China. The move is an acknowledgement by the country that such firms producing China products are a key element of creating jobs and provoking scientific innovation. Although China manufacturing and other sectors are still experiencing strides in growth, more challenges are arising both within the country and abroad due to the continuing debt crisis in Europe.

This is much welcomed news to those who operate and support SMEs as well as those who buy from China because such businesses are continually faced with pressures against operations, significant difficulties in obtaining financing and rising costs.

Eighty percent of China’s jobs are a direct result of enterprises that are small to medium-sized and, therefore, are seen as something worthwhile for the government to invest in. Acquiring bank credit for continued growth and expansion is a major challenge to SMEs. Most banks tend to ignore smaller businesses, preferring instead to dole out monies to large companies. Enterprises which are state-owned are at the top of the list for bank attention which places a huge hurdle in the path of struggling SMEs.

Fifteen billion Yuan, which is equivalent to around $2.38 billion, has been earmarked by the Chinese central government for use in boosting SMEs in hopes of relieving some of their financial stress and making it easier for those doing business in China. The majority of the development fund is to target new start-up businesses that fit within the confines of SME guidelines.

The Chinese government is also setting up a system whereby they can evaluate commercial banks that are active in providing small firms with credit and other financial aid. Qualified banks will receive the means by which they can issue bonds in order to gain more funds to funnel into SME firms. Other banks will be encouraged by the State Council to increase or provide credit support to SMEs. Targeted specific recipients of such additional financial aid will focus on programs supplying affordable housing, agricultural sectors, and major construction projects which are ongoing.

Further assistance announced by the government is to allow greater foreign and private capital and international funding use by relaxing current restrictions. Small and micro-sized firms will also be permitted to list on China’s stock market.

Furthermore, the development of new technologies as well as equipment and techniques will be encouraged and 3,000 incubation bases will be established in order to encourage the start-up of new SMEs. The creation of public service platforms is also on the agenda to support the new surge of SMEs, improving services to and from them.

Financially, there are several items which were addressed and made policy back in 2011 that China says will be honored. Small companies which pay business and corporate value-added taxes will see the threshold raised, low profit businesses will enjoy income taxes reduced to half (until 2015), and a 3-year pardon of bank stamp taxes for those small firms which hold lending contracts.

The business atmosphere for small and micro-sized enterprises appears to be looking up which is sure to strengthen the base for China sourcing.

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