China's initiatives for SMEs boost access to finance, fuel innovation

In east China's Anhui Province, a mechanical manufacturing company recently applied for a loan renewal as its current loan approached maturity. By opting for a deferred principal repayment, the company was able to ease short-term liquidity pressures and focus on its operations instead of immediate repayment concerns.

"The loan renewal terms, including the interest rate and repayment structure, are relatively flexible," said Zhang Jinzhi, the company's representative. "For instance, when our loan was about to expire, we applied for an extension with deferred principal repayment, which alleviated our liquidity pressures."

Such loan renewal measures reflect a broader national strategy to support small and medium-sized enterprises (SMEs) in China. The government has rolled out various initiatives this year to ease the financial burden on businesses, with one of the most widely supported being the principal-deferral loan renewal. Initially introduced for micro-enterprises, this policy was later expanded to include small and medium-sized businesses, helping them maintain operations during challenging periods.

In addition to loan renewals, the government has introduced other financial support measures, including a 100 billion yuan (about $13.8 million) re-loan scheme aimed at start-ups and tech-focused SMEs. Financial institutions have been encouraged to reduce service fees for smaller businesses while offering more flexible repayment terms. By September 2024, the total loan balance for small and micro-businesses had increased by 2.2 trillion yuan across major commercial banks.

Hu Dongchen, co-founder and CFO of Syi Tsing Energy Tech, a start-up focused on software and hardware solutions for energy storage networks, emphasized the potential benefits of implementing principal-deferral loan renewal policies for their business.

"Though it takes time for national policies to be implemented by banks, the option for loan extension with deferred principal repayment directly supports our operations," Hu told CGTN. His company, which is exploring green energy initiatives, values stability and consistency in policies.

Alongside financial assistance, the government is encouraging innovation within the private sector. In east China's Zhejiang, local authorities compiled a list of more than 260 research and development challenges from 225 private manufacturing firms. These challenges, which span fields like low-voltage circuit breakers and new polymer materials, are being addressed through collaborations between businesses and research institutions.

Local governments are also fostering collaboration between universities and smaller enterprises. For example, 22 PhD and master's students from Wenzhou University are working with local companies to address technical challenges in the electrical and new energy sectors.

These efforts are part of a broader strategy to support technological advancement in the private sector. As of September 2024, there were over 180.86 million private businesses in China, accounting for 96.37 percent of all businesses in the country, according to the State Administration for Market Regulation.

This growth is particularly evident in industries such as new energy vehicles, integrated circuits and 3D printing, where private businesses now account for over 20 percent of total production. To further support these industries, the government has simplified regulations to create a more conducive environment for business development.

In late September, the Political Bureau of the Communist Party of China analyzed the economic situation and announced plans to standardize regulations affecting enterprises and promote a law to support the private sector. These measures are aimed at creating a more favorable business environment and enhancing legal protections for private companies.

"Law enforcement should be more fair, and the level of rule of law should be improved so that businesses can focus on improving the quality of their operations and corporate governance, ultimately creating profits and providing better returns for investors," said Tian Xuan, dean of the National Institute of Financial Research at Tsinghua University.

Further steps were taken in October to enhance government support for enterprises, including policy measures to improve financing access, foster innovation and create a fairer market environment. For instance, financial institutions are being encouraged to provide greater support for small and micro-enterprises, and a comprehensive financing system is being developed to secure an additional 300 billion yuan in credit approvals annually.

Additionally, China has taken steps to facilitate greater collaboration between private enterprises and state-run research facilities. To foster innovation, China is actively promoting the participation of private companies in major national scientific projects and has opened up important research infrastructure to them.

"Participating in a national-level nuclear power project is something we never imagined; it truly exceeds our expectations as a private enterprise," said Xu Liang, deputy general manager of a company in the photovoltaic industry that has recently ventured into the nuclear power sector. The company, along with other stakeholders such as China General Nuclear Power Group, signed a framework cooperation agreement.

"The share transfer process from the original investors to us was efficient and smooth," Xu added. "The government is taking concrete steps to open up market access for private companies in sectors we hadn't previously entered."

The Chinese government has also taken steps to streamline communication between businesses and regulatory bodies. Since June 2023, China has established seven channels for regular communication with private enterprises, covering over 600 businesses across various industries. This initiative allows the government to better understand the challenges facing the private sector and address issues more efficiently.