China looks to shunned pvt firms for growth

China looks to shunned pvt firms for growth
REUTERS

SHENZHEN, JUNE 24: China is seeking new ways to end "discrimination" against private firms and give them a bigger role in the economy, officials said on Friday.

Beijing has been reluctant to surrender control over much of the economy but policymakers are now looking to China's 1.28 million registered private companies to propel growth and absorb workers laid off from ailing state firms, they said. "We must have the support of the government to do away with discrimination," Gao Shangquan, director of the government Chinese Institute of System Reform think-tank, told a rare seminar on the non-state economy in China.

Many of the country's so-called "non-state" companies are small, making it difficult for them to obtain bank credit or list on the stock market. The government will soon announce a basket of measures aimed at encouraging development of small companies, officials said.

"The position of small- and medium-sized enterprises in the economy is becoming more and more clear," said Di Na, deputy director general of the State Economic and Trade Commission's department of small- and medium-sized enterprises. "Financing has become the main focus."

Private entrepreneurs, the main component of the non-state sector, get only five per cent of total bank loans, official figures show. Just three per cent of China's nearly 1,000 listed firms are non-state companies.

MORE FINANCING CHANNELS NEEDED: China will encourage smaller financial institutions to offer credit, while big state commercial banks would raise the proportion of loans to smaller companies, Di said.

Bankers say one of the major obstacles is that the central bank sets lending rates, meaning best borrowers are charged virtually the same rate as clients with weaker credit.

Dai Xianglong, governor of the People's Bank of China, said earlier this month that Beijing would press ahead with interest rate liberalisation, eventually allowing deposit and lending rates to be set by the market.

China would also push more non-state firms to list shares as another way to raise funds, officials said. Market regulators have said the Shenzhen and Shanghai stock exchanges plan to set up special trading boards for high-technology and private companies.

But Anthony Neoh, chief adviser to the China Securities Regulatory Commission (CSRC), said this month the second board was likely to be launched early next year.

Securities industry executives have said China is also considering merging the two main boards in Shanghai and putting the second board in the southern boom town of Shenzhen. "Work on the second boards is in progress," Shen Qingsan,vice-director of Shenzhen's Economic Development Bureau, told reporters. "We hope it will be finished this year."

He declined to comment on rumours of a possible merger between the Shenzhen and Shanghai bourses. Di said China would experiment with "credit guarantee centres" to offer loans and other services to small companies. Officials also said Beijing was considering scrapping, or granting exemptions from, some kinds of corporate taxes.