China SMBs face financing difficulties

Small and midsize businesses (SMBs) in China appear to be facing greater cost pressures, as they struggle to cope with difficulties in securing trade finance, a study revealed. Labor cost and raw materials have become two of the largest factors putting a drag on the bottom line.

This has led a call for greater support from the government through a focus on fiscal policies and improving financing channels to the companies. Some of the policies suggested include tax rebates and labor cost subsidies.

The report, jointly published by the Peking University and the Alibaba Group, surveyed 3,476 SMBs over six cities in the Bohai region. It revealed that profits for nearly half of them dropped in 2011.

Wages were a big factor that year, with 53 percent of them rating it as having had a more significant impact. This was a rise of 11 percentage points from the previous year.

The rising cost of raw materials was also a key concern with 55 percent of companies rating it highly. This was slightly higher than the 52 percent polled in the previous year.

Strong demand for trade finance
The report showed that there was a demand for financing from 62 percent of the SMBs, with half of this segment requiring loans of under 500,000 yuan (US$79,285). However, it was noted that this amount, though not high, was not easy to fulfil with current financing channels available-- 32 percent of them had yet to take out a loan.

Almost 46 percent of the firms chose to borrow from family and friends, making this the most popular choice of securing funds.

SMBs hope to reduce burdens
With concerns over rising operational costs, one way identified by the report to help ease the burden was through tax reliefs. Another option was subsidies for labor expenses.

Mr Zhou Qiren, president of the Peking University National School of Development, said: "The importance of SMBs is not only in the number of people they employ, but also in their overall strategic impact, because many of the future big corporations will develop and grow from the current crop of SMBs."

"Helping SMBs to solve the problem of difficulty in financing is also laying the foundations for the development of future big corporations," he added.

Zhou stressed the problems were structural and that the government needed to put greater effort to stablize the wider economy, including addressing the current negative interest rates, and creating a level playing field.

Hu Xiaoming, vice-president of the Alibaba Group, said: "Currently, the information regarding SMBs is not sufficient. The survey of the three regions, that have a greater concentration of SMBs in China, started together with the Peking University in 2011. This is to deliver a more accurate picture of the current situation of SMBs in different regions."

The study is the third in a series after one done in the Zhejiang region in July last year as well as one completed in the Pearl Delta region in last September.