It is widely recognized that small-and-medium-sized enterprises (SMEs) have an irreplaceable role in promoting employment, economic growth, technological innovation, social stability and harmony etc in China.
However, some small-and-micro enterprises in China currently face heavy tax burdens, difficulties in financing, and thus difficulties in running their business. A China State Council regular meeting, chaired by premier Wen Jiabao, recently concluded to strengthen tax supports and financial services to SMEs, especially for those small-and-micro enterprises supporting the real economy, complying with national environmental and industrial policies, and able to offer jobs in services, processing, and technological industries.
According to the meeting, there are 9 new measures to help effectively supporting the development of SMEs. In the below paragraphs, please note that the term SMEs, by definition, refers to small-and-medium-sized enterprises but it also covers small-and-micro enterprises as well.
(1) Reinforce credit supports to small-and-micro enterprises. In financial institutions of banking sector, growth rate of loans to small-and-micro enterprises shall not be less than the average growth rate of total loans. The amount of loans to small-and-micro enterprises shall also be higher than that in the same period of previous year. For any small financial institutions that can meet the above requirements, PBoC (People's Bank of China) shall continue to offer them with lower deposit RRR (Reserve Requirement Ratio). Commercial banks shall enlarge credit supports to small-and-micro enterprises for loan amount not exceeding RMB 5 million in each account. The banks shall also reinforce end-user monitoring and loan supervision, in order to avoid abnormal use of loans in small-and-micro enterprises.
(2) Effectively cut the actual costs for corporate financing by correcting and removing unreasonable financial services charges. Prohibit commercial banks to charge fund management fees or commitment fees on loans to small-and-micro enterprise unless they are for syndicated loans. Strictly restrict commercial banks to charge small-and-micro enterprises for financial consulting fees or advising fees.
(3) Broaden financing channels for small-and-micro enterprises. Gradually expand the issue size of collective bills, collective bonds, and short-term financing bonds for small-and-micro enterprises. Actively and steadily develop financing tools such as private equity and venture capital investment funds. Further promoting the development of exchange centers and the OTC (Over-The-Counter) markets, and improving equity mortgage financing environment to small-and-micro enterprises. Proactively develop credit insurance and loan guarantee insurance for small-and-micro enterprises.
(4) Refine differential regulatory policy for financial services to small-and-micro enterprises. Relax entry restrictions on commercial banks running a certain percentage of loan business for small-and-micro enterprises, such as allowing the banks to build more branches and franchised institutional network. For commercial banks that issue financial bonds to small-and-micro enterprises, loan amount not exceeding RMB 5 million can be exempted from the scope of examination in calculating their loan-to-deposit (LTD) ratio. Permit commercial banks to regard loans not exceeding RMB 5 million to small-and-micro enterprises as normal retail loans for risk weighting calculation, thus minimizing the impacts for occupying capital resources of the banks. Allow commercial banks to appropriately increase their tolerance of non-performing loan (NPL) ratios for small-and-micro enterprises.
(5) Promote the reform and development of small financial institutions. Strengthen the role of small financial institutions to provide services to small-and-micro enterprises, residents, communities, as well as the "three rural". Promote the formation of new-type rural financial institutions and guide small financial institutions to expand their service network under prudent regulation.
(6) Promote the healthy development of private lending with proper regulatory management and risk prevention. Effectively curb the tendency of usury private lending, crack down illegal fund-raising campaigns, financial pyramid schemes and other illegal financing activities. Strictly monitor and prohibit financial institutions to involve in private lending. Financial supports to small-and-micro enterprises shall be provided in accordance with the market principles, thus reducing administrative interventions, preventing credit risks and moral hazards.
(7) Increase taxation supports to small-and-micro enterprises. Lift up thresholds of value-added tax (VAT) and business tax for small-and-micro enterprises. Extend the period (until end-2015) as well as the scope of the policy that halves the corporate income tax for small-and-micro enterprises. Add public technology services (PTS) offered by eligible SMEs (small-and-medium-sized enterprises) into the scope of import tax preferential policy for technology development items.
(8) Support financial institutions to strengthen financial services to small-and-micro enterprises. Exempt stamp duty (in a period of 3 years) for financial institutions lending to small-and-micro enterprises. Extend the period (until end-2013) of the tax deduction policy that offers to financial institutions with bad loans for SMEs (small-and-medium-sized enterprises). Extend the period (until end-2015) of the 3% business tax reduction policy (for their finance and insurance incomes) that offers to eligible rural financial institutions.
(9) Expand the size of tailor-made funds for SMEs, and make more use of indirect ways to support small-and-micro enterprises.
We believe the above latest measures shall support the healthy development of SMEs (small-and-medium-sized enterprises) as a whole, although it still needs proper implementation to ensure effectiveness of all these measures.
Related article(s):
Inside the SME Credit Crisis
Tuesday, March 27, 2012
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