On the eve of the convening of the National People's Congress on March 2, the All-China Federation of Industry and Commerce (hereinafter referred to as "ACFIC") released 28 proposals involving multiple aspects such as expanding financing channels for environmental protection enterprises and establishing a risk-sharing mechanism between banks and insurance institutions. Among them, the seventh proposal clearly put forward encouraging and supporting the development of small loan companies, while the sixteenth proposal called for improving the investment environment for private capital in the oil industry. A person from the ACFIC told the reporter that the proposals of the ACFIC for the National People's Congress in recent years all involved content about encouraging the healthy and orderly development of private capital, which is expected to become the main source of investment in China. Meanwhile, encouraging and supporting the development of small loan companies is an effective way to guide private funds.
According to a survey by the ACFIC, more than 90% of private small and medium-sized enterprises said they could not obtain loans from banks, among which nearly 62.3% of private enterprises and family businesses have been financed through private lending in the past three years.
"Our country's private finance is opening up very slowly. For example, it is difficult for small loan companies to get licenses, and the establishment of small financial institutions and small banks is not allowed. Although the state has clearly stated to strengthen funding support for micro and small enterprises, without the growth of micro-financial institutions, it will be equivalent to doing nothing," said Yuan Gangming, director of the Macroeconomic Research Office of the Institute of Economics of the Chinese Academy of Social Sciences. He pointed out that private finance should be opened up and cannot be discriminated against or suppressed.
The aforementioned person from the ACFIC revealed to the reporter that the ACFIC had started researching the development situation and financing status of micro-enterprises nationwide at the end of February, and might release a research report based on the research results by the end of April.
Supporting Private Finance
As an ancient form of private finance, private lending has a history of thousands of years; but when it has long been in a state of non-public private transactions, the lending method maintained solely by mutual credit undoubtedly makes it easy for both lenders and borrowers to fall into a lose-lose situation.
"When our country's monetary policy tightens, small and medium-sized enterprises are the biggest victims," said Yuan Gangming. Not many small and medium-sized enterprises can obtain funds from banks, so they eventually choose to borrow money from relatives, friends, and fellow townspeople, turning the sources of borrowing and financing channels into financing between residents and friends, which is very pitiful. At the same time, this private transaction carries significant risks, and the "Wu Ying case" is such an example.
The occurrence of the "Wu Ying case" undoubtedly pushed private finance into the public's view and became a focus of attention for this year's National People's Congress.
"For the development of private finance, there should be both guidance and restrictions," said Yuan Gangming. Many micro-enterprises cannot find money, but many large enterprises have funds but nowhere to invest. In such a situation, the establishment of private financial institutions should be opened up, discrimination and suppression should not occur, thereby guiding the price of private financing funds to gradually return to normal and creating conditions for standardizing and promoting the healthy and orderly development of the private finance market.
According to the information obtained by the reporter, the "two sessions" of 2010 and 2011 continuously listed "further promoting the development of small loan companies" as one of the main proposals.
"Small loan companies have played an important role in alleviating the difficulties of small enterprise financing and promoting the development of small and medium-sized enterprises. Therefore, further encouragement and promotion of the development of small loan companies should be carried out, guiding more private capital to be invested in small loan companies," emphasized the aforementioned person from the ACFIC repeatedly. Developing small loan companies is an important way to solve the financing difficulties of small and medium-sized enterprises, especially micro-enterprises.
Unbundling Small Loan Companies
As early as May 2008, the China Banking Regulatory Commission and the People's Bank of China jointly issued the "Guidance Opinions on the Pilot Program of Small Loan Companies." Subsequently, local governments at all levels also successively introduced detailed implementation rules, and small loan companies were quickly established nationwide. However, since the pilot program began, small loan companies have faced many difficulties in survival and development, such as obstacles in financing channels, business scope, and tax preferences.
A general manager of a guarantee company told the reporter that the "only lending, no depositing" operation model made it difficult for many pilot small loan companies to obtain funds from financial institutions, and relying solely on shareholder-provided funds greatly constrained the continuous development of small loan companies' businesses. At the same time, the tax burden on small loan companies was too heavy.
According to the information obtained by the reporter, currently, the tax amount for small loan companies is not levied according to the interest rate spread of financial institutions, but rather paid as ordinary industrial and commercial enterprises, with corporate income tax, business tax levied on interest income, urban construction tax, education surcharge tax, etc., all within the levy scope.
"We have always suggested providing certain policy support to small loan companies, including encouragement in various aspects such as financing channels and tax preferences, to enable them to play a greater role," said the aforementioned person from the ACFIC. The field of private capital has been a focus of attention for the ACFIC over the past few years and remains one of its main work contents to continue promoting in the future.
"From last year’s national initiative to strengthen the support for micro-enterprises and eight measures to support private enterprises, to this year’s stipulation of the deadline for the new 36 regulations, these actions indicate that the government is carrying out structural reforms to remove institutional constraints on private capital," said Yuan Gangming. After the National People's Congress, several regulations involving private finance, such as the "Regulations on the Administration of Private Lending," should be issued because private finance has reached a critical moment.
At the time of filing the report, as a pilot area for financial reform, a private lending registration service center in Wenzhou has just officially started operations; meanwhile, Wenzhou may establish 120 small loan companies in the next year.