SMEs seek equal footing in China's new reform

Although China's small- and medium-sized enterprises (SMEs) are still grappling with a sluggish economy, they are cheered by initiatives that will hopefully pull them out of their predicament. "I have nothing valuable left except for my wife," Zeng Dexiang said with a forced smile. Self-mockery is popular among China's 11 million SME owners, who usually mortgage their valuables to banks to access much-needed funds. Zeng is the board chairman of a Guangzhou-based company that has exported nearly eight million telescopes to the United States and the European Union in the past decade. Like Zeng's business, most SMEs are frustrated by the high cost of finance, the sluggish economic recovery and over-capacity. The Ministry of Industry and Information Technology (MIIT) recently surveyed over 2,000 small and micro businesses. More than half of the respondents complained about rising labor costs, materials and financing, according to Zhu Hongren, chief engineer of the ministry. "The cost of labor has increased by 20 percent in 2013 alone," said Deng Yonghao, chairman of Cronus Bike, a small company that has switched its focus from the overseas market to the domestic one. "Financing costs have risen by 8 to 10 percent," Deng said, noting that it is about four times higher than that in foreign markets. Deng said his domestic sales have doubled every year, but that it is still hard to compete with state-backed firms for resources. Other main obstacles for Chinese SMEs include unreasonable tolls, a shortage of staff and a lack of distribution channels, according to Zhu of the MIIT. China's SMEs provide more than 85 percent of the country's total jobs and three quarters of all technology innovation. They also account for half of the tax revenue of the economy. Protecting and stimulating vitality among SMEs has become a pressing issue. SME owners like Zeng Dexiang and Deng Yonghao are keeping an eye on the Central Economic Work Conference, which started on Tuesday in Beijing to review the country's economic work in 2013 and map out plans for next year. Prior to the meeting, a reform agenda unveiled last month promised to further free up markets, and affirmed equal status of public and non-public sectors. The 60-point decision on "comprehensively deepening reform" was announced after a plenum of the Central Committee of the Communist Party of China (CPC). It stressed to abolish unreasonable regulations and barriers imposed upon the private sector, and build a fair system of market access. "We hope the government can work harder to build a more equal market environment," said Deng. "The CPC's reform agenda signals very optimistic prospects for SMEs," said Cao Pengfei, a professor with the Party School of the CPC Central Committee. "Companies should notice their opportunities in the new round of reform." To empower SMEs, the Chinese government has, since August, waived value-added tax (VAT) and business tax for companies with monthly sales lower than 20,000 yuan (3,300 U.S. dollars). The policy will benefit six million small and micro businesses in the country, easing them from a tax burden of 12 billion yuan a year. The authorities have also canceled 33 categories of administrative fees and launched a nationwide tax reform trial in traffic and modern service industries. The move is expected to save SMEs 120 billion yuan in taxes. Zhu told Xinhua that the MIIT plans to set up 4,000 public service platforms for SMEs by the end of 2015, and 307 have already been established as models. The platforms will provide services related to information and technology, financing, energy saving and environmental protection, as well as training and logistics, according to the MIIT. China has also pledged reforms of its banking sector to make lenders more attentive to the needs of cash-strapped SMEs. Tao Jianquan, general manager of the small business department of the China Guangfa Bank (CGB), said it specializes in SME banking. "We have hired over 1,000 new customer managers in the past three years, for SME clients exclusively," Tao said. "We also streamlined our finance procedures to enable an eligible small business to receive loans within 12 days after its application. These measures have been welcomed by our customers," he added. Tao said CGB has granted more than 11 billion yuan to SMEs in the first eight months of the year, and total loans for 2013 may exceed 20 billion yuan. "China's effort to support SMEs also includes the promotion of bilateral and multilateral cooperation," said Zhu of the MIIT. The Chinese government pledged to step up cooperation among Chinese SMEs and their counterparts in Germany, Sweden and the Asia-Pacific Economic Cooperation members. "Chinese and foreign SMEs are at different stages of development and with various resources, but they can be complementary partners," Zhu added.