Transcript PPT

Financial Dilemma of
SME in Shanghai,
China.
By Eugene Lim
[email protected]
The Parts of Topic
Abstracts
 Introduction
 Importance of SME in economy
 SME in China
 Difficulty of SME Financing in China
 Capital structure in China SMEs
 Conclusion
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Abstracts
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The purpose of this paper is to provide an overall scenario of the
financing for the small firms in Shanghai and also the difficulty faced
by the enterprise in financing their business. Surveys of thirty SMEs
were conducted between June and August, 2016 to determine the
factor for SMEs generally influence the secured loan. The feedback
were analysed and discussed later.
The finding will show that the type of financial resources that SMEs
would prefer when there is a funding shortage. The analysis
interpretation and discussion basically support the financial theories
and understanding of current issues for SME in business financing.
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Introduction
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SME created more than a rate of 75% employment opportunities in
China and contributed to a higher number of Chinese GDP which is
at 55.6% (He & Cao, 2007).
99.3% of registered firm in China is belong to SME which
contributed to 62.3% export according to China National Bureau
Statistics.
In the future, dynamic and vibrant SMEs brought the economy from
classical to market economy and showing to the world the greatest
of China entrepreneur and the RMB currency.
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Importance of SME in economy
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Government loosen the regulation of setting up SMEs since 1990.
SMEs China represent the global engines of economic growth
Produce large quantities, invest in new technology, adapt new
economy and expansion.
Internal and external funds in financing.
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Engage in business activities using either money from within a company
or from outside.
 External funding either going into debt or giving up control
 Type of external financing used by SME such as bank loan, venture
capitalists and shadow banking in investment
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Bank Loan
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China Banking System consists of f large Stated Owned
Commercial Bank (SOCB)
 BOC, ICBC, ABC, CCB, BOCOM
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The financial environment also made up by all 3 policy
banks, 12 joint-stock commercial banks, 124 city
commercial bank, 42 urban credit cooperatives, 17 rural
commercial banks and 113 rural cooperative banks.
The banking system controlled by central bank of China
which is called People's Bank of China
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Bank Loan
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Commercial bank offers two types of loan to SME
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one-time loan and stepped loan
SME had less opportunity in getting loan compared to least efficient
SOE (State Owned Enterprise) in the last ten years
SME with a good cash flow and healthy balance sheet has a high
percentages to apply for business loan
Bank also considered the loan if the debt-to-equity rate is minimum.
SME also easily get loan in environmental, agriculture, healthcare,
and nanotechnology industry recent years.
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Factors that affected a bank
loan
Types of difficulty
Sample Mean
Company Size
3.5625
Relationship with
2.4375
Government
Company financial situation
3.7500
Age of the company
Relationship with bank
officers
Types of ownership
Types of industry
Debt Percentage
Rank
3
8
1
3.1250
3.5000
6
4
3.3750
2.9375
3.6875
5
7
2
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Venture Capitalist
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SME in China tends to get the fund from the firm at the second
stage of development.
The pool of money came from high net worth people, pension,
foreign investors and SME has to pay 25% of the profits earned to
venture capitalists
Liu, Zhang & Hu, 2016 commented that 40 percent of the invested
project making a brilliant profit and 50 percent is at break even.
Some SME does use the assistance of venture firm on purpose
because they have a strong relationship with government
representatives.
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Shadow banking
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Informal finance, online peer-to-peer (P2P) platforms, micro-finance
institution and legally registered non-banking financial institution
(NBFI)
Not an illegal banking system, not monitored by CBRC (Central
Banking Regulatory Commission)
Monitored by Industrial Commercial and Management Bureau.
Jiang, 2009 said that there are eight types of NBFIs in China
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Credit guarantee companies, leasing companies, small loan companies, pawn
shop, trust companies, rural mutual aid funds, P2P lending platforms and crowd
funding platforms
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Shadow Banking
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Majority of the NBFIs belong to Credit Guarantee, pawn shops and
small loan companies which contributed at 25,000 registered
companies as on 2015.
Does not deal with deposit transactions and interest rate does not
permitted more than four times of lending rate set by central bank.
Desperate fund (not protected by law)
Underground finance - “grey” finance type
 Illegal finance - “fraud” harmful to banking law
 Unobserved finance - not captured in the National Accounting
Information System (NAIS)
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SMEs in China
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Zhang, 2004 wrote on Caijing Magazine stated that most SMEs
focus more on domestic market rather than international market.
SMEs focus mostly labour intensive rather than technological
industry.
Recently, there have been promotion given to China SMEs by the
government. Government given huge investment into certain area
such as maintenance and design, environmental, logistics and
transport.
The productivity and quality increased with less capital compared to
SOE (State Owned Enterprise)
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Difficulty of SME Financing
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External and internal finance
Structure of financial structure
Political problem
Taxation and investment policy
Rate of credit
Accounting and auditing system
Scale of economy
Existence of collateral to banks
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Capital structure in China SMEs
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Transform from a command economy to a market economy.
Government monitored closely China Stock Exchange (Huang &
Song 2006).
SME used capital market to get listed in the market. SMEs in China
used IPO (Initial Public Offering) in developing the market.
More than 50 percent private sectors contributed to China GDP but
receive less than 20 percent of bank lending (Li, 2009a).
Li said that there exists around 40 percent of private sector has
informal financing accounts.
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Preference of financial theories
for expansion
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Conclusion
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SME prefer bank loan as their first choice used in business growth
rather than equity financing.
Company background, debt ratio and company size influence
Chinese banks when they issue the loan the SMEs in China.
The relationship with government officers marked a very low mean
level in the point scale survey.
Big size industry such as manufacturing has a better chances to get
finance from bank as they have more tangible assets compared to
other industries.
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Thank you and all comments can be send
to my email
[email protected]
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