Capital market shifting for more direct financing to support SMEs
Mi Jiayi
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02:33

China's economy grew at a 6.3 percent rate in the first six months of this year. Small and medium-sized firms accounted for an important part. While China is continuing to support small and medium-sized enterprises (SMEs) growth, senior analyst of Shanghai Securities Cai Junyi said that increasing the ratio of direct financing is helpful to encourage innovation, and that is what the government prepared the capital market for.

Running a company is not easy. Zhang Shu is the founder of a Shanghai start-up that makes beer brewing equipment for both commercial and household users. In today's sluggish economy, his company is now aiming to work with bigger and more famous clients for fast growth instead of looking for a huge rise in client numbers, said Zhang.

"We can see that in both our corporate and our private clients, their purchase and investment decisions are affected. We adjusted our strategy in the first half and accelerated our cooperation with big brands, including state-owned companies and the biggest BBQ and drink bar chains. As China goes through a consumption upgrade, we'll have more opportunities to provide personalized products," Zhang said.

VCG Photo

VCG Photo

For companies like Zhang's, financing is always an important part in supporting development. His company got a few rounds of investment from private investors and took part in start-up competitions. The entrepreneur explained that bank loans only represent one-tenth of their total financing.

"If you look at the global economy, the more active a capital market is, the more innovation it will see among its businesses. In fact, this is not the best time to count on bank loans, because while these companies can have a high income, they also have high risks," said Cai.

The science and technology innovation board is also intended to be a way for SMEs to get more direct financing from retail and institutional investors. Data from the Asset Management Association of China shows that as of September last year, China had had more than 14,500 private equity and start-up investment funds supporting about 45,000 SMEs.