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Financing Difficulty for Small and Medium-sized Enterprise in China (Evidence from Manufacturing Sector in Jiangsu Province)
Abstract: It is well known that SMEs (small and medium-sized enterprises) is an integral component of the economy system. But there are some difficulties when it comes to financing for SMEs in China, This study aims at describing the financing status of SMEs in China and investigates into why it is so difficult for SMEs to get financing service. A questionnaire is designed to study the financing difficulty of SMEs. It reveals that SMEs have to resort to external financing when they need fund to expand their business due to the fact that they have no sufficient internal fund. It is also difficult for SMEs to get external financing, especially bank loans.
Key Words: SME (small and medium-sized enterprise), financing, credit rationing, bank loan
CONTENTS
1.INTRODUCTION
1.1 What Is SME?
1.2 Development of SMEs in China
1.3 Financing for SMEs in China
1.4 Banks and SMEs Financing
1.5 The Financing Difficulty for SMEs
2. LITERATURE REVIEW
2.1 Financing Theory
2.2 Information Asymmetry and Financing Choices
2.3 Credit Rationing and Relationship Lending
2.4 SMEs Financing Difficulty in China
3. THEORETICAL FRAMEWORK
3.1 Credit Rationing
4. METHODOLOGY
5. DATA ANALYSIS
5.1 General Information on Surveyees
5.2 Financing Status
5.2.1 Financing Demand
5.2.2 Financing Choice
5.3 SMEs Difficulty in External Financing
6.CONCLUSION
REFERENCE
1.INTRODUCTION
Contributing a lot to the rapid development of the economy, SMEs (Small and Medium-sized Enterprises) is an essential part of the whole economy in China. One of the most important aspects with regard to SMEs is about their financing problem. Getting external loans from banks is a normal way for financing but it is relatively difficult for SMEs to get enough funds from banks in China due to various reasons. The constraint that SME faces in terms of financing now becomes the main block to the development of SMEs. Recently, the government, both at the national level and the provincial level, attaches great significance to the financing difficulty of SMEs. In this section, several facts about the financing situation for SMEs in China will be introduced in detail.
1.1 What Is SME?
For different economies, the definitions for SME are quite different. Several versions of official criterions for SME has been published since the foundation of China in 1949. The newest version, defined by indicators of number of employees, sales and the value of assets within different industries, was published in 2003. The specific conditions are listed in Table 1.1. This classification gives the specific description on how to distinguish whether an enterprise belongs to SME.
Table 1.1 Criterion for SME
Industry
Number of Employees
Sales(million Yuan)
Assets(million Yuan)
Industry
0-2000
0-300
0-400
Building
0-3000
0-300
0-400
Wholesale
0-200
0-300
Retail
0-500
0-150
Transportation
0-3000
0-300
Postal
0-1000
0-300
Lodging & Catering
0-800
0-150
Source:
Despite of the convenience this criterion brings to the authority when implementing policies, this classification is rather rough with only 7 industries which can not fully cover the whole economy. Besides, it also does not take account of the huge economic gaps among different regions in China. For example, a “poor” enterprise in the coastal region may be labelled as “rich ” in some less-developed regions. Due to the big flaws the old criterion has, the government plans to modify it in order to make it more precise and specific.
1.2 Development of SMEs in China
According to the statistics of NBSC (National Bureau of Statistics of China), there are nearly 4.3 million SMEs until 2008, among which 3.8 million are self-employed enterprises. SMEs account for about 99% of all enterprises in the whole country. The fields that SMEs are involved include manufacturing, textile, metallurgy and so on. SMEs concentrate mainly in some labor-intensive industries. They create over 80% value of the food, paper and printing industry, 85% of the clothing, leather and stationery industry and over 90% of the timber, furniture industry. The rapid development of SMEs contributes a lot to the whole economy. It is obviously seen that SMEs contribute a lot to the whole economy in terms of employment, tax income, export and GDP.
Table 1.2 Contribution to the Economy by SMEs (%)
Employment
Tax Income
Export
Source: data are sorted from
1.3 Financing for SMEs in China
Financing can be divided into internal financing and external financing, including direct financing and indirect