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Despite huge amounts of private capital eager for investment, many private enterprises are struggling against a capital shortage. How does this happen? What are possible solutions? In today's installment, we examine the financial struggles of private companies.
Mr. Yang is a regular customer of this pawn shop. Every time he needs a short-term loan for his small commodity store, he comes here.
Mr. Yang, private business owner said "Bank lending takes a long time and requires strict examination. But it's much easier and faster to get loans here."
Most customers of the Baoruitong Pawn Shop have similar experiences as Mr. Yang. These private small and medium-sized companies usually demand money in a pressing situation, but have limited access to bank credit. Here at the pawn shop, all they need is collateral.
Xu Yunpeng, Executive Officer of Baoruitong Pawn Shop said "Pawn shops mainly examine the value of collateral. This is the most important thing for us. The collateral can be housing properties, cars, or other valuable items. Basically, as long as they meet our requirements, we will lend."
"This is a sample of a housing mortgage contract of Baoruitong. It doesn't require enterprises to have sound credit records or to go through a series of time-consuming procedures. As long as they can provide property as mortgages, they can get their loans in just one day. It may cost more, but it did help solve their financing needs."
The speedy financing channel is quickly gaining popularity among private enterprises. Last year, Baoruitong offered more than 30,000 sets of loans worth 3 billion yuan. Most went to private small and medium sized companies. But there is still a big gap between market supply and demand.
Xu Yunpeng, Executive Officer of Baoruitong Pawn Shop said "Three billion yuan seems like a lot. But compared to the 80-billion-yuan market demand from private SMEs in Beijiing, it's really small. The market is big. But pawnshops alone can't fill the gap."
China's lending boom in 2009 mainly benefited large, state-owned companies, while leaving private SMEs begging for loans. The SMEs only received around one-third of the total lending volume in the year.
However, in contrast to the financing difficulties, there is abundant private capital eager to find investment opportunities. How does this happen?
Zhao Min, Founder of Adfaith Management Consulting said "The phenomenon is mainly due to insufficient competition in the financial sector. Limited categories of financial institutions are hard to meet the market demand or absorb social capital. To solve the issue, we need more smaller financial institutions, like rural banks, to help guide the huge amount of private investment into the real economy."
Betty Ku Wun-Shim, Regional Head of Standard Chartered (China) said "SMEs lending is a huge opportunity in China... It must take different participants from different-sized financial institutions."
The Chinese government stresses the importance of expanding financing channels for private enterprises. In its latest policy promoting private investment, the government encouraged private capital to participate in the financial service sector. It's a move to improve financial services to private companies. But even so, industry insiders say there is still a long way to go to completely solve the problem.
Now with the supporting policy, what should private enterprises do to seize opportunities? How to link their own structural adjustments with the nation's changing economic growth patterns? In our final installment, we discuss the importance of innovation and product upgrades during the process of a private enterprises' transformation.