, the country's central bank, said on Monday that the bank welcomes private and overseas investment in small and medium-sized banks (SMBs).
The remarks are reminiscent of a circular issued by the central bank early last month calling on commercial banks to provide more credit support to small and medium-sized enterprises (SMEs).
The welcome message and the circular reflect different ways of managing the thorny finance issues of SMEs, producing different results.
The problem is not a new one and it was not the first time the central bank required commercial banks to extend more credit to SMEs. But its repeated calls do not seem to work. Large firms have enjoyed the majority of credit.
In Jiangsu Province, for example, 45.3 per cent of the increased credit was given to 130 large enterprises in 2000 while 38,418 smaller enterprises suffered a decrease in credit.
Why are commercial banks reluctant to give SMEs credit to support their development?
Commercial banks, mainly large State-owned banks in our current financial structure, take it as a primary task to control credit risks. They are trying every means to shake off bad debts that impede their future growth in an increasingly tough environment.
The credit application of SMEs, on the other hand, is generally small, which adds to the loan-giving costs of large commercial banks. And with many at their initial stage of growth, SMEs generally do not have good enough profit and credit records that meet the requirements of commercial banks.
That is why those banks move so slowly in face of the central bank's "more credit" calls.
Now, by developing SMBs, the central bank has struck the right note.
The investment of private and overseas capital in those banks will improve their shareholding structure and make them more market-oriented. The majority of shares in those banks are currently held by the State.
Since small and medium-sized have more flexible policies than big banks, they are more suitable sources of credit for SMEs.
In developed countries SMBs have become a major driving force of the local economy, which is mainly supported by SMEs. It is a valuable experience we can learn from.
(China Daily September 19, 2002)
