| SMEs are important components of the economic structure of all countries. They make an indelible contribution in a country's economic growth and its level of employment by leveraging competitive advantages in product decentralization, management, specialization, scaling-down and so on. Currently, small and medium enterprises are a pillar of social stability for global economic development. China has more than 10 million registered SMEs and 8.5 million SMEs as defined by the "Interim Provisions on Standards for SMEs" account for 99% of the total number of enterprises. They contributed to 51% of the national GDP, providing 43.2% of national tax revenue; also contributing greatly to gross industrial output (60%), sales revenue (57%), income tax payments (40%) and total exports (60%). Nationwide SME retail outlets made up over 90% of total retail network sales. SMEs also provided some 75% of urban employment opportunities. They have played an important role for the comprehensive construction of a well-off society and for building a socialist harmonious society in China.However, the situation of SMEs in China, especially in the area of financing, is very worrying. In recent years, the pace of development of SMEs in China has begun to slow. The major reasons for this are a shortage of funding and unresolvable difficulties in financing. At present, there is a huge gap in short-term loans for China's SMEs and they are unable to rely on long-term loans. According to the survey, 81% of SME owners believe that a one-year short-term loan cannot meet the actual needs of enterprise development. It is very difficult for the majority of small and medium enterprises to get long-term loans. At the present stage, the most important way for SMEs to get money is through funding channels and credit financing, which resulted in a situation in which the value created by China's SMEs was not commensurate with the financial support they were receiving. Financing has become one of the major barriers to the development of SMEs. There is a large number of surplus funds in financial institutions, but SMEs are unable to get loans from them, which has put them in a very difficult position. The financial structure of SMEs is unreasonable and channels for financing are narrow, which severely restricts the development of Chinese SMEs.Based on literature on financing of small and medium enterprises at home and abroad, we have found the following reasons for the problems in financing facing SMEs: (i) The issue of property rights. State-owned commercial banks and state-owned large and medium-sized enterprises enjoy the benefits of state-owned property rights, which means they have a vested interest in the status quo. This also propagates the vertically integrated contractual relationship between state-owned commercial banks, state-owned enterprises and government, which alters the short-term credit leases between the state-owned commercial banks and state-owned enterprises. Their relationship is like a "business organizations," reducing internal transaction costs and helping state-owned enterprises to grow and develop, driven by state-owned commercial banks that focus on financial support. In this environment, SMEs that are not part of these "business organizations" SMEs are unable to take on projects that have a socially beneficial goal, which keeps SMEs from obtaining government sanction, hindering their ability to get finance. In addition, China's public ownership of financial systems and the market basis for private property rights have resulted in a lot of inevitable contradictions. This contradiction is also one of the key reasons SMEs are having difficulties in getting finance support. (ii) The existence of "credit rationing" has resulted in asymmetric information. In the real world, the existence of information and supervision costs caused by incomplete information, have resulted in the method of credit rationing seriously limiting the financing of small and medium enterprises. (iii) The lack of impetus of state-owned commercial banks to lend to SMEs. First, as the shareholding reform of China's state-owned firms moves forward, there is a heavy burden of responsibility for accountability of bank credit and loan management. The lack of incentive mechanisms has restricted the ways in which SMEs can get loans from banks and other financial institutions. Secondly, major financial institutions are more willing to provide financing services to large enterprises. Finally, the restrictions on interest rates and transaction costs, supervision fee restrictions, unmotivated big banks to provide loans to SMEs. (iv) Financing channels are too narrow. First, China has yet to form a multi-level capital market, making it difficult for SMEs to obtain direct financing. Secondly, securing mortgages and guarantees limit the scale to which SMEs can obtain indirect financing. Finally, full use has not been made of private funding. (v) Their own problems. The stage of development of SMEs and the industry in which they operate also restrict their financial options.. In addition, poor internal management, issues in financial systems, narrow-minded investment and lack of a long-term plan among a considerable number of Chinese SMEs has been less than beneficial to securing financing.After clear analysis of the reasons for the financing problems facing SMEs, we can begin presenting policy recommendations to resolve the problem of SME financing. First, we can use more effective information mechanisms to relieve the imbalance of information for SMEs. After using game theory to analyze the relationship between borrowers and lenders, the author points out that we must first establish and improve the national credit system to establish an effective mechanism for information, which resolve the imbalance of information; and second refine the system for legal penalties; and finally, we must strengthen the cooperation between SMEs and banks. The second point is to make full use of private financing, providing SMEs legal backing for this type of service. Through quantitative analysis, the author points out that using private financing will not only increase the options open to SMEs, but also promote market-based interest rate reform. The funds of state-owned commercial banks can then also be effectively utilized. With the difficulties in the reform the property rights structure and problems in the development of capital markets, the fastest way to resolve the financial woes of SMEs is to rapidly define the position of private funds in law and reasonably and effectively guide the channeling of large amounts of unused funds. Thirdly, appropriately timed launching of a growth business board and widening of financing channels for SMEs is also needed. My analysis points out that since it is faced with financing problems, China should improve its financial support system by launching a growth business board at the appropriate time and improving investment and financing channels for SMEs, thus promoting their development. |
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