Study On Countermeasures To Alleviate The Financing Difficulties Faced By SMEs In China

With the enhanced position and increasing influence of Small and Medium-sized Enterprises (SMEs) in China's national economy, the financing difficulty of the SMEs comes into the spotlight. This paper presents an analytical study of the financing status quo of the SMEs and reasons behind it. Currently, China is still in the transformation period of socialist market economy; the economic system remains to be perfected; there are still some problems with the financial system of the SMEs and the social credit system has not been established. Under the combined effect of the above and other factors, the SMEs are faced with financing difficulty, which is getting worse in new situations. Meanwhile, their own restrictions, such as small scale, poor credit, opaque information and weak anti-risk ability also contribute to the problem. However, the low operation efficiency of current financial system serves as the major reason. This paper sets forth the main content of the SMEs financing theories and presents analyses of their deep meaning, and the applicability of these theories in China is demonstrated. It also sums up the systems and policies concerning the SMEs financing in advanced countries, thus providing a valuable reference for solving the SMEs financing problem under new situations in China.Probing into this topic is beneficial for the healthy development of the SMEs and the national economy as well as the social stability. The SMEs play an irreplaceable role in increasing employment, maintaining social stability, promoting technology advancement and creating social wealth, etc. The study is also conducive to financing theory exploration to provide theoretical support for China's financial innovation. After careful analyses of the essential of SMEs financing cycle theory, credit rationing theory and SMEs relationship lending theory as well as the applicability in China, we can develop the theories in the context of China's economy and environment and make meaningful theoretical exploration in a bid to solve SMEs financing difficulty. The study is helpful in boosting the financial system innovation too. During the early period of establishment of the SMEs, due to the small assets scale, the lack of business records and financial audit, the information is closed, which leads to the information asymmetry between banks and enterprises. Meanwhile, China's credit information system has not been established and the credit guarantee system is not complete, so the SMEs are very hard to obtain loans from banks. Probing into this topic is favorable for solving financing problems, promoting the development of financial supporting measures, improving the financial efficiency and bringing the role of finance into full play, to eliminate the worries of the SMEs in financing.There are four chapters in this paper:Chapter 1: The financing status-quo of domestic SMEs and reasons. The investment scale of domestic SMEs sees an increase year on year, while the fund collection channel lacks variety. Their expansion is generally faced with tight fund and under the direct influence of national macro economic and financial policies. The SMEs usually can not get the credit loan from the financial institutions, only in the form of mortgage. Whether the fund is accessible is dependent on the enterprise profit. The main reasons behind are the information opacity of enterprises, incomplete legal system and credit guarantee system as well as financing system.Chapter 2: Study upon relevant SMEs financing theories in some developed countries and their applicability in China. The SMEs financing cycle theory, credit rationing theory and SMEs relationship lending theory as well as their applicability are further expounded in this part.The SMEs financing theory: With the change of enterprise growing period, the information restricting conditions, enterprise scale and capital demand are becoming the basic factors influencing the change of enterprise financing organizations. Different financing arrangements shall be set out in different periods of enterprise life cycle.Credit rationing theory: Under the general interest rate and other supplemental conditions, the phenomenon that the market clearing can not be achieved in credit market is caused by the banks'practice of pursing maximum benefits, having nothing to do with the interest rate cap setting of the Central Bank. The banks are offering differentiated service to different lenders. Some enterprises lacking information transparency will be declined by the banks. They are mostly small enterprises. The fundamental reason for the credit rationing is the adverse selection caused by information asymmetry.SMEs relationship lending theory underlines the value of"relationship"to small enterprises and its change during their development in a long run. First, when the small enterprises in their initial periods ask loan from the bank, they are willing to pay higher interest as the credit commission to ensure the better credit conditions in the future. Second, the banks are at advantage with small, unknown and one bank- dependent enterprises. Therefore, the banks are happy to keep the credit relationship with previous enterprises.Chapter 3: Study upon SMEs financial systems and policies in foreign countries. The SMEs financing issue was underscored and settled much earlier in foreign countries than in China. Developed countries boast complete financing legal system and sound financing system to support the development of the SMEs. Some governments set up policy-oriented institutions or banks to provide special-purpose loan or guarantee for the SMEs. Meanwhile, there is multi-layer capital market to provide financing support. The non-governmental"Angel Fund", venture investment and the like also give the potent support for the development of domestic SMEs.Chapter 4: Proposals on solving the financing difficult of domestic SMEs. The approaches are mainly included in: filling the bank in legal system, completing legal system, establishing multi-layer and diversified SMEs financing system, establishing and perfecting credit guarantee system and enterprise credit system, establishing multi-layer capital market, playing the guiding role of government.All in all, to solve the financing difficulty of the SMEs is a systematic engineering, which requires the establishment of policy system and financial system in conformity with China's national condition and the benign interaction and collaboration between financial institutions, government and enterprises. Moreover, the utilization efficiency of social fund shall be enhanced, and the financing environment of the SMEs shall be improved so that the domestic SMEs can maintain the healthy and sustainable development and play a more significant role in promoting the harmonious and stable development of the society.