BizViews

Boost for SMEs

(China Daily)
Updated: 2009-09-24 08:24

The new policy that the State Council rolled out to strengthen support for the development of small- and medium-sized enterprises (SMEs) is long overdue. Though the strong rebound of the Chinese economy has alleviated the impact of the global recession on domestic enterprises for the time being, such a comprehensive endeavor to shore up SMEs is still very much needed for a sustainable recovery.

On the one hand, by creating a more favorable environment for SMEs, the country can count on these enterprises as a new source of economic growth for sustaining its recovery.

Boost for SMEs

Large enterprises, mostly State-owned, have so far benefited hugely from the country's 4-trillion-yuan ($586 billion) stimulus package and the unprecedented credit expansion.

Yet, after China's fixed-asset investment - mainly driven by large enterprises - surged to account for more than 80 percent of gross domestic product growth in the first half of the year, policymakers realized that such a growth pattern is neither sustainable nor desirable.

Hence, more efforts to stimulate the growth of SMEs become necessary for cushioning the Chinese economy against any possible double dip.

On the other hand, by dismantling many long-term obstacles that have hindered the growth of SMEs, this new counter-crisis policy response may usher in a new chapter of inclusive economic growth.

According to the document issued by the State Council, small businesses will be entitled to bigger tax breaks, better access to markets and banking loans, and stronger government aid on technological innovation.

Admittedly, it is still unclear how many SMEs will actually benefit from these incentives. But, the new policy as a whole points to a more open and fair competition environment for SMEs to thrive.

Outstanding loans for SMEs stood at 12.5 trillion yuan at the end of June, accounting for 53.7 percent of lending to all enterprises. Though this is in line with the fact that SMEs contributed to about half of the country's industrial output, the distribution of banking loans between SMEs and large State firms has failed to reflect the more important fact that the former provides about 80 percent of all jobs.

It has become increasingly evident that the same investment would create much less jobs in large enterprises than in SMEs. And if domestic consumption is to play a greater role as expected in fueling economic growth, more jobs must be created to ensure that Chinese consumers are able to earn more and spend more.

In this sense, any measure the government takes to help the SMEs ride out the crisis also serves to boost employment and consumption growth.

The urgent need for China to pursue a consumer-led recovery entails more new and concrete incentives for SMEs.