Small firms to benefit in China

September 3, 2008
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, BEIJING, September  3 – China\’s banking regulator is calling on banks and other lenders to provide more loans to small enterprises, highlighting growing government concerns about the need to boost growth and create jobs.

Financial institutions must "make maximum use" of a five-percent increase in the loan quota, focusing the money on small enterprises, the China Banking Regulatory Commission (CBRC) said in a statement on its website.

They must also make sure that lending to those companies rises faster than overall loan growth, according to the statement, which was posted Tuesday.

Interest rates on the loans should be set at a level that limits risks but "supports the sustainable development of the small enterprises," it said.

The banks were also told to open more outlets where private business is active and provide more innovative funding channels, such as allowing equity shares and intellectual property rights as loan security for those enterprises.

The statement was posted one day after the central bank published a note on its website pledging to expand loan access for three sectors, including small companies.

"Small- and medium-sized enterprises have been under big pressure amid the global economic slowdown," said Li Ruoyu, an economist with the State Information Centre, a government think tank.
"They are a key job creator … and it is a more dynamic part of the economy. So the government wants to reduce the impact (from slowing exports) by providing some financial support," she said.

China\’s central bank last month raised this year\’s quota of new yuan loans by five percent, the official Xinhua news agency said earlier.

The previous cap was widely understood to be no more than 3.63 trillion yuan (530 billion dollars), the same amount as was lent in 2007, as the government intended to curb the country\’s runaway inflation using a tight monetary policy.

Stephen Green, an analyst with Standard Chartered in Shanghai, said the credit controls had particularly affected small and medium-sized enterprises, as banks tend to lend to large state-owned companies.

Smaller companies have little other choice, since borrowing from private lenders tends to be much more costly, he argued.

"If you are able to access financing, it\’s much more expensive, which of course puts severe pressure on the small and medium-sized enterprises," he said.

Chinese lenders extended 2.5 trillion yuan of new loans in the first six months of the year, according to central bank figures. In the first five months, 16.2 percent of all new loans were to small and medium-sized firms.

SHANGHAI, September 3 – US soft drinks giant Coca-Cola Co. said Wednesday it planned to buy Chinese juice maker Huiyuan Juice Group in a 2.4-billion-dollar deal that would be its biggest acquisition in China.

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