BEIJING - Small enterprises that have been facing capital shortages might get relief soon, if State-owned banks ease lending policies for such businesses, Hu Xiaoming, vice-president at Alibaba Group, said.

Hu made the remarks on Wednesday in Beijing as Alibaba (China) Co Ltd and the National School of Development at Peking University jointly issued a report on small firms' management and financial difficulties.

The Hangzhou-based company is China's top e-commerce group, offering online marketplaces that facilitate business-to-business activity for small companies.

"State-owned financial institutions should enhance their trust in small enterprises and help to develop small business, which accounts for 65 percent of China's GDP," Hu said.

The report shows that 63.3 percent of small companies need financing to cope with surging production and raw material costs. The financing gap is less than 1 million yuan ($155,000) for 76 percent of the companies.

Jiang Yabin, the owner of an environmental protection technology company in Wenzhou, Zhejiang province, said just 800,000 yuan would allow him to continue expanding this year.

"At present, few enterprises are going bankrupt over financial difficulties, because the capital they need is small. However, there's no doubt that small companies' assets cannot support their expansion" as inflation rises, Hu added.

"Labor costs have increased 20 percent from a year earlier while the price of our products remains the same as last year," Huang Wei, an entrepreneur in Zhejiang province, said.

To ease the pressure of higher labor costs, small firms want to invest in automation, but they need financial support from State-owned banks to do so.

"However, the main clients of State-owned banks are State-owned enterprises, rather than private-sector and small enterprises," said Xue Zhaofeng, an economist at the National School of Development of Peking University.

Xue said State-owned banks charge much lower interest rates than private loan sources. The market should determine interest rates, not regulations, Xue said.

Some small firms whose loan applications have been rejected by State-owned banks are trying to get funds from private sources.

However, Hu said, such lenders can charge as much as 5 percent a month.

Last year, Alibaba launched an online lending platform, providing loans of up to 500,000 yuan for small firms.

China Daily

(China Daily 07/28/2011 page14)