In a recent address at the 2024 Financial Street Forum, Li Yunzhe, the Director of the National Financial Supervision Administration, emphasized the critical need to meet the financing demands of enterprises effectivelyHis comments highlighted a particular focus on easing the challenges faced by small and micro enterprises, ensuring that private sector businesses receive equitable supportAs the discussion unfolded, several pressing questions arose regarding the ongoing financing issues small enterprises face and the strategies that can be deployed to eliminate the bottlenecks that prevent a steady flow of capital into these vital components of the economy.

This year has seen a steady increase in the scale of credit supply in ChinaData released by authorities reveal that by the end of August, the balance of Renminbi loans reached 252.02 trillion yuan, marking an 8.5% year-on-year increaseA closer look at these figures indicates that support for key areas continues to grow significantly; loans aimed at inclusive small and micro enterprises surged by 16.1%, and loans to private enterprises also rose by 9%. Notably, interest rates have stabilized with a slight downward trend—between January and August this year, the interest rate on newly issued inclusive small and micro enterprise loans fell by 0.4 percentage points compared to the previous year.

The increase in the volume of loans granted reflects a renewed financial demand from small and micro enterprisesThe central financial work meeting underscored a shift in focus, directing more financial resources toward fostering technological innovation, advanced manufacturing, green development, and supporting small and micro businessesDespite this, many small enterprises exist as "credit white households," lacking continuous and stable high-quality credit informationThis deficiency severely restricts financial institutions from providing quality financial services that these enterprises desperately need

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In recent years, financial institutions have begun to address these bottlenecks more aggressively, implementing various measures to expand financing channels.

For example, in Fangchenggang, a city in Guangxi province, local banks have collaborated with tax departments using digital methods to identify the financing credibility of small and micro enterprises, thereby removing barriers to loan issuanceDongxing City Zhongyue Thai International Food Company, which specializes in food processing, faced significant cash flow challengesTheir production cycle required substantial upfront investment to procure raw materials like durians and taro, which meant they did not see revenue until after product salesThe time between purchasing and selling put severe pressure on their cash flow. “Thanks to our credit data and operational status, Guangxi Dongxing Rural Commercial Bank extended a timely credit line of 1 million yuan to us, breathing new life into our production expansion,” said Wu Qingxun, the company’s deputy general manager.

Experts note that, from the perspective of bank credit, numerous small and micro enterprises are still not included in the fundamental financial credit information database, with traditional secured lending still dominating small loansThe sector is in urgent need of more useful and reliable non-credit data to optimize financing information servicesBanks are encouraged to strengthen their engagement with external information-sharing channels, ensuring clean connectivity with sources such as market regulation, credit reporting, electricity, and telecommunication sectors to break data silos and create a well-rounded cross-industry data service platformThis would assist in creating a clearer profile of enterprises while minimizing the risks associated with loan issuance.

When it comes to executing these strategies, there are three crucial components noted by expertsFirst, on the matter of “who will take action,” at the district and county level, specialized teams must be established to conduct enterprise visits, assess funding needs, and facilitate financing recommendations

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Banks will also establish specialized teams, mobilizing in-house resources to encourage grassroots institutions to take risks and provide loans, proactively addressing the financing needs of small and micro enterprises.

Second, regarding “how to implement this,” specialized working teams must adopt a dual approach, engaging both enterprises and banksBy deeply embedding within parks, communities, and rural areas, they can comprehensively assess financing needs and compile two clear lists—identifying eligible enterprises to recommend to banks, which can then respond rapidly and accurately to these small companies’ loan requests.

Lastly, experts suggest setting clear targetsThey aim to achieve three main goals: first, ensuring that low-cost credit reaches the grassroots level, effectively dismantling the “last mile” barrier to benefiting businesses and the publicSecond, establishing rapid and convenient loan processing for qualifying enterprises by creating green pathways for banks to speed up approvalsFinally, reducing the overall cost of financing for small and micro enterprises by cutting back on information collection costs, minimizing intermediary steps, and consequently lowering lending costs and additional fees.

According to Zhou Maohua, a macro researcher at Everbright Bank, the broader Chinese economy has remained stable and is on a path to recovery this yearHowever, economic indicators reveal that effective demand is still lacking, leading to insufficient vibrancy among microeconomic entities and an uneven industry recovery, highlighting the urgent need to restore business confidenceCoordinating mechanisms for supporting small and micro enterprise financing take these current challenges into account while also focusing on fostering long-term developmentEstablishing a long-term mechanism to resolve financing issues can decisively promote the healthy development of these crucial businesses.

In terms of optimizing financial services for technology-driven small enterprises, a pivotal shift is needed to support new productive forces

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The central financial meeting underscored the importance of addressing five critical areas including technology finance, paving the way for commercial banks to significantly improve their services for technology-oriented small enterprisesThis incorporation of financial products and methodologies reflects a progressive evolution in how banks approach lending.

In recent years, Taizhou Bank has crafted inclusive supply chain financial products tailored specifically to the needs of technology-based small enterprises, aimed at providing comprehensive financial support throughout every stage of the enterprise’s supply chainA case in point is the bank's collaboration with tech-driven small enterprises focusing on renewable resource integrationBy efficiently consolidating the supply chains of these businesses, the bank has been able to allocate credit resources effectivelyBy the end of June, the bank had extended loans totaling 10.382 billion yuan to support 3,141 national high-tech and technology-oriented small enterprises, facilitating necessary equipment upgrades and expansion efforts.

Overall, it appears that initial successes have been registered in the banking sector's support of technology-driven enterprise growthThe second-quarter loan allocation report for 2024 indicated that 261,700 small technology companies benefitted from loans, with a loan acquisition rate of 46.8%, higher than the same period last yearMoreover, 257,600 high-tech enterprises also reported a loan acquisition rate of 55.6%, up 1.1 percentage points from the previous year.

Despite these achievements, technology-based small enterprises generally face challenges due to their asset-light structures, long investment cycles, and significant uncertainty regarding success ratesTraditional commercial banks tend to focus heavily on profitability, collateral, and mortgages, meaning financing paths for tech-oriented enterprises often remain misaligned with their needs.

To address this inconsistency, commercial banks should hone their innovation in financial products and services to better cater to the financing requirements of technology-oriented small enterprises

Li Peijia from the Bank of China points out that banks must extend their evaluation criteria beyond the traditional financial indicators to encompass technology content, intellectual property, and supply chain factors, fostering innovative products such as intellectual property pledges and invoice receivablesFor technology finance-specific products, banks should create specialized evaluation systems that take into account the distinct characteristics of tech enterprises, addressing the common pain points related to collateral and guarantees.

Moreover, adapting product offerings to suit the different life cycles of technology-oriented enterprises is crucial to enhancing compatibilityAccording to Li, customized financial products should be developed based on precise enterprise profiles reflecting unique cash flow characteristicsFor instance, expanding the domain of technology bonds and asset securitization, where raised funds are earmarked for projects aligned with national strategies supporting critical technological innovations, is a potential pathway forward.

Continuing support for loan rollover services is also vital, particularly given the role of small and micro enterprises in stabilizing the economy and boosting employment opportunitiesHistorically, China has placed significant emphasis on the financial services available to small and micro enterprises.

Researchers such as Lou Pengfei from the Postal Savings Bank of China highlight that various supportive measures, from monetary policy adaptations to financial regulatory interventions, have been enacted in recent years to bolster the financing of small and micro enterprisesMaintaining a reasonable level of liquidity while employing structural reserve ratios and other instruments can drive enhanced funding support, with clear regulatory guidelines steering financial institutions toward increasing initial loans, fostering credit loans, and introducing no-repayment rollover loans to improve financing accessibility.

As these enterprises work to recover from the impacts of the pandemic, it remains clear that, in any funding endeavors—whether developing products or tackling market challenges—capital provision is essential

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