SMEs, a future in China?

Firstly, what is  a  SME?

         A Small and Medium-sized Enterprise (SME), sometimes referred to as Small and Medium-sized businesses (SMBs), are businesses were the employees´ numbers fall below certain limits as do their revenues.  It must be mentioned that not only small enterprises outnumber large companies by a wide margin, but also they do employ more workers.  SMEs are also considered to be responsible for driving innovation and competition in many economic sectors.

Current Situation

        China´s continuous and exponential economic growth has demonstrated an extremely important need for new and innovative enterprises. Enter SMEs.

However, although there are nowadays many SME being established in China, the not well defined financial and legal limits and irregularities regarding them have been proven as an obstacle for their development in this country.

Therefore, their future in China depends directly in their access to financing.

Due to this, there are four main hurdles that must dissapear in order to fully introduce SMEs in this country.

One of the first obstacles that should be tackled are the structural advantages that SOEs (State-Owned enterprises) have over SMEs in China so banks end their preference financing the first over the last.

This takes us directly to the second problem that should be taken care of. The so called «SME’s lending-focus». Large banks only lend to SME by a 10%, in comparison to the 20% small and medium banks give. As large banks dominate the Chinese banking landscape, it’s of vital importance that this initiative gets support, so that these enterprises can have an easy access to this banks’ financial support, mainly to improve their efficiency.

Of course, this would mean that there’s also a need for a Interest Rate Reformation regarding them.

Last but not least, there is a urge to develop payment innovations that address directly the SME’s unique needs. That is, SMEs with a developed paying method can enhance both efficiency and margins, not only thanks to the supply chain’s performance, but also to the purchasing, T&E and trading finance new paying systems, if made possible.

In a nutshell, based completely in global benchmarks, in order to improve the SME’s access to working capital and financial status, these recommendations should be fully implemented, to remove these final obstacles and allow innovation into China’s economy, as SME’s have proven most competent in this.

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