The Research Of Finance Difficulty For Small-Medium Enterprises Of China

The world economic development shows that SMEs (Small and Medium-sized Enterprises) play an important role. However, the difficulty of finance is the "bottleneck" during the development of SMEs whether in China or in other countries. Comparatively, this problem is purely economic difficulty in western countries. But in China SMEs not only has to (?)ace the common problem, but also has to conquer the negative effect caused by economic system reform. Therefore, the problem of finance difficulty to SMEs in China is more complicated. Thus, it is signi(?)icant to study it.The paper comprises five chapters. Chapter I is preface about what we are study ing, why we study it, what' s the situation about this subject, what' s the structure of this paper, how to study and what' s the innovation and the shortcoming of the paper. Chapter II will introduce the situation about SMEs' finance in China. It will point out that finance from the outer channels plays an important role in the development of SMEs, especially from the commercial bank system. However, the problem of credit ration from the commercial bank system is serious. ChapterIII will analyze the common theory of credit ration and the problems of SMEs in China. Firstly, the paper offers an expectation profit function about loan. The function consists of two parts, the commercial bank' s expectation profit, which comprises the interest and the probability of paying the debt and the cost, which comprises the variable cost and the fixed cost during the loan. The paper will point out that the commercial bank' s expectation profit is not linear with the interest and then it will introduce the classic credit ration theory, the Stiglitz and Weiss model. Secondly, the paper will introduce two ways to increase the commercial bank' s expectation profit as the interest keeps constant, one is the mortgage and the other the relationship loan. The SMEs cannot offer enough mortgage thus they are confronted with more problems during finance from the commercial banks. Furthermore, the SMEs in China offer less mortgages and have more problems. As to the relationship loan, the small financial institutions have advantages over the big financial institutions. The cooperation, one of the small financial institutions, is neighborhood with the SMEs and the members of the cooperation are also the owners of it who have more drive to investigate, supervise the SMEs and it also can make sure that the SMEs pay off the debt when they are bankrupted by affecting the relationship between the owner of the SMEs and the others in the committee. Thus, we should attach more importance onto the development of the cooperation. Finally, the fixed cost per unit when the commercial banks loan to the SMEs is much bigger as compared with to the big enterprise while the income is almost the same. Chapter IV will analyze the particular factors of the credit ration of the SMEs in China. Firstly, the structure of the financial institution, which is monopoly and simplex is the essential reason. On one side, the four big state-owned commercial banks monopolize the domestic financial market while they refuse to loan to the SMEs because they have a high-danger and low-income expectation in economy and they don' t have effective methods to stimulate and control the basic agent in the bank. As the stimulation is concerned, the wage of the basic agent in the bank is strong linked with his position and education but is week linked with spot endeavor. Though the bonus is linked with the spot endeavor, it is too week compared with the lap caused by the position. So the basic agent of the bank pays more attention to relationship between people but not the profit. As the controlling is concerned, the four big state-owned banks require that the responsibility follow the client manager all the life and they would assess the risk, which lead to two behavior, risk-disgust and risk-preference. The former leads to refuse all of the business once it will increase the risk while the latter leads to expand the scale of the operation. Moreover, both credit contraction and credit expansion aim at achieving the risk assess by decreasing the rate of the default. Thus, SMEs face more serious credit ration in every period when there is big fluctuation in the business. On the other side, the small and medium financial institution can not satisfy the development of the SMEs as the follows: lack of trust, high threshold of the entrance and invalid administer. Secondly, lack of trust all over the country is the key point of the credit ration. The SMEs need credit loan much more than the big enterprises because they have lesser mortgage. However, lack of trust all over the country, income bigger than cost for default and shortage of consciousness of fostering credit standing in the SMEs lead to more information imbalanced and more cost when the commercial bank grant credit to the SMEs. Finally, the further reason of the credit ration is that both the government and the SMEs have moral risk. The basic barrier during the development of the economy is the commitment of the government and the enterprise. The enterprise is afraid that the government will forget what he has committed when the enterprise finish the investment while the government is worried about the enterprise would not fulfill the responsibility to the society. FDI can solve this problem, that is, on one side the government should think of the fame of the country thus she will not default easily, on the other side the foreign enterprises have normative operation and they will not disobey the transaction rule and the trust standing just for the spot interest. This is the further factor against the development of SMEs, which also lead to too much exchange. Therefore, the government always prefers FDI to SMEs. The commercial banks also prefer FDI considering that the FDI have normative operation, which will increase the rate to pay a debt. So we should quit the idea of discrimination against the SMEs. ChapterV is about some suggestions. For example, developing and perfecting the small and medium financial market is the key method to solve the problem. Furthermore, we should accelerate the inner reform of the state-owned commercial banks, set up the system of credit guarantee, create good circumstance to open the information for the SMEs, establish a new system to share the information for every participant in the market and so on.