Research Report on the Current Financing Situation

I.BasicDevelopmentofthePrivateEconomyintheFourRegions<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

I.1JiangsuProvince
Bytheendof2000,thetotalnumberofprivately-ownedenterprises(POEs)inJiangsuProvincereached174,000withatotalnumberofemployeesof2.342millionandaregisteredcapitalofRMB94.864billion.In2000,theprivateeconomiesoftheprovincecontributedRMB170billiontoGDP,representing20%ofthetotalGDPoftheprovince.Currently,thetotalvalueoftaxespaidbyself-employedbusinesses(SEBs)hasexceeded12%ofalltaxesoftheprovinceandtheirlabourforceaccountsfor16.7%ofthetotaloftheprovince.

Intermsofindustrialstructure,NSEsmainlyconcentrateinthemanufacturing,wholesale/retailandrestaurantsectors.Intermsofregionaldistribution,47%ofthemarefoundinthefivecitiesofNanjing,Suzhou,Wuxi,ChangzhouandZhenjiang.

I.2ZhejiangProvince
Overthepast20yearsofreformandopeningup,ZhejiangProvincedevelopedfromthepreviousagriculturalprovincewithaweakeconomicfoundationtothepresentindustrialprovincewithfairlydevelopedlightindustryandprocessingindustry.Itsaggregateeconomyhasrisenfromthe12thtothe4thinChina.OneofthemajorreasonswhyZhejianghasbecomethefastestdevelopingprovinceinChina’seconomicdevelopmentisitsactivepromotionofthedevelopmentofSEBs.Atpresent,theprivateeconomyhasbecomeamajorcomponentofZhejiangeconomy,andtheproportionofsucheconomyisashighas80%insomeareas.In1999,thetotalnumberofself-employedbusinessesinZhejiangwas1.6444million,withaworkforceof2.8143millionpeople;whilethetotalnumberofPOEsinZhejiangwas146,400,with340,400investorsandaworkforceof1.5785millionpeople.Theproportionoftotalworkforceintheself-employedandprivately-runeconomies(SPEs)was16%ofthetotalintheprovince.TotalvalueofregisteredcapitalofSPEsreachedRMB120.36billion,exceedingthenetassetsofallstate-ownedindustrialandcommercialenterprisesinZhejiangProvince.In1999,thetotalvalueofindustrialoutputbySPEsamountedtoRMB399.34billion.Itwas45%oftotalvalueofindustrialoutputinthewholeprovinceandrepresentedagrowthrateof25.8%overthatofthepreviousyear.

Intermsofregionaldistribution,thenon-stateeconomyhaschangedthepreviousechelonformofdevelopmentcharacterisedbyfasterdevelopmentinthecoastalareasandslowgrowthintheinlandregions.ThestrengthofSPEsinNingboandHangzhouhasalreadycaughtupwiththatinWenzhouandTaizhou.Intermsofsectoralstructure,thereisstillaconcentrationinthesecondaryindustryandthecommercialwholesale,retailandrestaurantservicesofthetertiaryindustry.

I.3ShanghaiMunicipality
Bytheendof1999,therewere188,800self-employedindustrialandcommercialhouseholds(SICHs)inShanghai.Theyemployedatotalworkforceof233,800people,ownedatotalcapitalofRMB1.84billion,andrealisedanannualoutputvalueofRMB1.23billion.Meanwhile,therewere110,000POEswitharegisteredcapitalofRMB78.06billion,aworkforceof1.163millionpeopleandanaccumulativeannualoutputofRMB29.55billion.ThetotalvaluesofannualoutputandsalesofNSEsinShanghairoseby30%overthatofthepreviousyear,representing5%ofthetotalGDP.TotaltaxespaidbythemreachedRMB4.88billion,representing11.2%ofthelocalfiscalrevenue.Oneofthedistinctivecharacteristicsofnon-stateeconomicdevelopmentinShanghaiisitslargesize.In1999,theaverageregisteredcapitalofPOEswasRMB710,000,morethanthatintheotherthreeprovinces(RMB685,000inZhejiang,RMB545,000inJiangsuandRMB428,000inShandong).AsimportancewasattachedtoSPEsbyalldistrictgovernments,theirdevelopmenttendedtobecomebalancedbetweencitydistrictsandsuburbancounties,whichcorrectedthepreviouslyimbalanceddevelopmentconcentratedinsuburbancounties.Intermsofindustrialstructure,moreandmorePOEsareengagedinmanufacturingandtechnologyindustries.Thenumberofthoseinvolvedintheprimaryandsecondaryindustriesroserapidlyandtherateofgrowthexceededthatinthetertiaryindustry.

I.4ShandongProvince
In1999,thetotalnumberofSICHsandPOEsinShandongProvincewas2.995millionwhichemployedatotalworkforceof6.718million,ownedatotalregisteredcapitalofRMB23.09billion,producedatotaloutputofRMB68.36billionandpaidatotaltaxofRMB5.55billion,representing13.7%oflocalfiscalrevenueoftheprovince.

Basedonoursurvey,theNEShasturnedouttobethemostactiveandthefastestdevelopingsectorintheregions.Since1997,theeconomicgrowthpullingroleofthestate-ownedenterprise(SOEs)hasobviouslyweakenedasaresultofassetrestructuring,labourreductionandproduct-structureadjustmentinalargenumberofSOEs.Incontrast,China’sNEShasdevelopedrapidlyandbecomeavitalforceinsustaininggrowthofthenationaleconomy.In1999,thegrowthrateoftaxrevenuepaidbySEBsinShanghaiwas20percentagepointshigherthanthatofthewholemunicipality.InJiangsu,theaverageannualgrowthoftaxespaidbySPEsperannualreached32%overthepastfewyears.InShandongProvince,theproportionoftaxespaidbySPEstotheprovincialfiscalrevenuerosefrom11.5%in1996to13.7%.Inparticular,whileSOEslaidoffalargenumberofworkersandweregenerallyincapableofabsorbinganynewlabourforce,theNESservedasanimportantchanneltoabsorbthelaid-offworkersandlightenemploymentpressure.Bytheendof1999,SEBsinShanghaiandJiangsurecruitedanaccumulativeof228,000andover500,000laid-offworkersrespectively.During1998-1999,ShandongProvincere-employed280,000laid-offworkers.ThepictureinthefourregionsdemonstratesthattheNEShasplayedanimportantroleinpromotingmarketcompetition,improvingcommoditysupplyandservices,facilitatingcommercialisationofscienceandtechnologyresultsandco-ordinatingstate-ownedenterprisereform.

II.MainMeasuresAdoptedbyLocalGovernmentstoPromoteDevelopmentoftheNES

AstheNESisplayinganincreasinglyimportantroleineconomicgrowthandsystemreform,localgovernmentshavestrengthenedtheirsupporttotheNESoverthepastfewyears.Inparticular,theyhaveformulatedcertainpoliciestosolvefinancingdifficultyofNSEs.Suchsupportivepoliciesmainlycoverthreeaspects.

II.1EstablishingGuarantyAgencies
Tosupportthedevelopmentofsmallandmedium-sizedenterprises(SMEs),undertheenthusiasticadvocationofrelevantdepartmentsoftheCentralGovernment,localgovernmentsatalllevelsarefocusingtheireffortonsettingupcreditguaranteeagenciesforsmallandmedium-sizedenterprises.Suchguaranteeagenciesareregardedasabreakthroughpointforsolvingtheproblemoffinancingdifficulty.Forexample,exceptinspecificcities,allthe13citiesunderthedirectjurisdictionofJiangsuProvincehavesetupcreditguaranteeagenciesforSMEs.Thereare14suchagenciesinthewholeprovince,holdingatotalvalueofRMB400millioninregisteredcapital.In2000,theyissuedlettersofguaranteetoover200enterprises,withanaccumulativenumberofover1800andatotalvalueofRMB2.5billion.Basedonincompletestatistics,bySeptember2000,over50guaranteeagenciesweresetupinthecities,counties(districts)andtownshipsinZhejiangProvince.TheyownedatotalvalueofRMB218millioninregisteredcapitalandissuedover1490guaranteeswithatotalvalueofRMB771millioninfavorofover1,000enterprises.Atpresent,Jiangsu,ZhejiangandShandongProvincesareactivelyengagedinpreparationtoestablishprovincialguaranteeagencies.ShanghaiMunicipalityhasadjusteditspublicfinancebudgetingsystemandestablishedcreditguaranteeagenciesforSMEssupportedmainlybythemunicipaltreasurywiththebalancesharedbyalllevelsofpublicfinance.Bytheendof2000,thisguaranteesystemhasissuedguaranteefor1,833projectswithatotalvalueofRMB2.28billion.

II.2ImprovingFinancingEnvironmentforNSEs
Overthepastfewyears,inordertoimprovethefinancingenvironmentforNSEs,efforthasbeenmadebythegovernmentsofthefourregionsinthefollowingaspects:

First,strengtheningcontactandcooperationwithbanks.Inordertosupportthedevelopmentofprivately-ownedSMEs,relevantprovincialandmunicipaldepartmentsofJiangsuandZhejianghavesignedlendingco-operationagreementswiththeAgriculturalBankofChina,theIndustrialandCommercialBankofChinaandMinshengBankingCorporation,onfinancingissuesofSEBs.Theyhavealsomaintainedfrequentcontactwiththebankstoexchangeviewsandanalysemarketchangesandoperationalstatusoftypicalenterprises,andco-ordinatedwiththebanksintheirfieldstudiesonNSEs.

Second,solvingactualproblemsforsmallandmedium-sizedNSEsinthecourseofgettingloans.Forexample,theprovincialgovernmentofZhejiangProvincehasissuedseveralspecificpoliciestohelpsuchenterprisessolvetheproblemsofmultipleregistration,multiplechargesandrepeatedassessmentforrealestatemortgageintheborrowingprocess.TheGovernmentofHangzhouCityspecifiedpoliciesforNSEstoacquirepubliclandassets,whichhasimprovedthefinancingenvironmentfornumeroustownshipenterprisesaftertheirsystemreform.

Third,establishingspecialagenciestoprovideservicestoSMEs.Inordertosupporttheseenterprisesinanactiveway,theShanghaimunicipalgovernmenthasestablishedafinancialaccountingmanagementcentreandaSMEservicecentretoprovidethemwithinformation,consultancyandmanagementservices.Meanwhile,inordertofundamentallyrelievefinancingstressfromSMEsandputthemarketinorder,theShanghaimunicipalgovernmentplanstoestablishastandardcreditratingagencyandacreditsystemforsmallandmedium-sizedenterprisewithin3-5years.

II.3SettingupVentureInvestmentFund
Inordertopromotethedevelopmentofsmallandmedium-sizedscienceandtechnologyenterprises,manylocalgovernmentshavesetupventureinvestmentfundsandventureinvestmentcompanies.Forexample,JiangsuProvincehasestablishedaventureinvestmentcompanywithprovincialgovernmentfinanceandstartedmarkettrialoperation,andmajorcitiesoftheprovincealsofollowedsuit.ThegovernmentofZhejiangProvincesupportedtheestablishmentofthreeventureinvestmentcompaniesandsomeofitscitygovernmentsalsosetuprenovationfundsforSMEs.InShanghai,themunicipalgovernmenthasbuiltupaventureinvestmentsystem,whichincludescertainspecialisedagenciessuchasShanghaiChuangyeInvestmentCompany,ShanghaiScienceandTechnologyInvestmentCompany,ShanghaiLianchuangInvestmentManagementCompanyandShanghaiTechnologyPropertyRightExchange.Bythebeginningof2001,thetotalvalueofventureinvestmentfundsraisedbyShanghaiMunicipalityexceededRMB5billion,whilemorethan40variousventureinvestmentandmanagementcompaniescameintobeing.

III.FinancingStatusandProblemsofthePrivateEconomy

Ingeneral,witheffortsmadebyallareasconcerned,financingdifficultyencounteredbyNSEshasbeenrelievedtosomeextent.However,theproblemhasnotbeensolvedfundamentally.BasedonstatisticsofShanghai(TradeandDevelopment)ServiceCentreforSmallEnterprises,afterayearofitsestablishment,80%ofitsclientsdemandedfinancialassistance.InJiangsuProvince,theproportionoftheoutstandingbalanceofloanstoSPEsin1999onlytookup4.8%ofthetotal.Althoughtherewasasmallincreasein2000,itonlyreached5.2%.InZhejiangProvince,theproportionoftotallendingbyallcommercialbankstotownshipandprivately-ownedenterprisesonlytook6.5%ofthetotalin2000.Theproportionoflendingbyurbancommercialbankswasslightlyhigherat8.2%.InWuxiCityofJiangsuProvince,therewere6700newPOEsin2000withatotalregisteredcapitalofRMB5.024billion.However,newcreditfundsforthemwasonlyRMB54million.Therewere20POEswithexcellentperformancethattookpartinthebank-enterpriseco-operationproject,butonlythreeofthemobtainedloans,totallingRMB7million.Obviously,thissituationistremendouslyoutoflinewiththestatusofNESinthetwoprovincesofJiangsuandZhejiang.

III.1BanksGenerallyCompeteforLargeEnterprisesandRelucttogiveloanstoSmallOnes.
AlthoughthecreditpolicyoftheCentralBankencouragescommercialbankstoincreaselendingtoSMEs,forsafetyconsiderations,however,allcommercialbankscompeteforlargeclientsandrelucttolendtosmallborrowers.Thishascreatedasituationwheremorethansufficientfundsaremadeavailabletothelargeenterprises,whereasthesmallonesareunabletohavefinancialsupportenoughtogetoutofthecorner.Theconsequenceiscapitalabundanceofbothbanksandlargeenterprises,resultinginsignificantincreaseinenterprisesavingsandloansflowingtoconsumptionandstockmarket.TakeWuxicityforexample,enterprisesavingslastyearincreasedbyabout17%,representing52.5%ofincreasedsavings.Meanwhile,short-termlendingbybanksforhousingandconsumptionincreasedby38.3%,makingup51.9%ofthetotalincrease.Incontrast,lendingtoindustriesonlyincreasedby6.1%,remarkablylowerthanthe14.4%growthrateofindustrialoutput.Inaddition,billacceptancebusinesshasdevelopedrapidlyoverthepastfewyears,butithasalsofocusedonthelargeenterprises,thebankshardlygiveanybillacceptancequotatothesmallones.

III.2DiscriminationagainstPrivateOwnershipSystemStillRemainsinVariousDegree.
ExceptinZhejiangProvincewheretheNESisuniversallyacceptedforthesakeofitsparticularhistoricalandculturalbackground,wefoundinthoseplacesofourstudyvariousdegreesofdiscriminationagainstSEBs.Withthelong-terminfluenceoftheplannedeconomyandtraditionalideology,financialdepartmentsgenerallytendto"beafraidof"privateownership.Somelocalitiesreportedthat,forthesameamountofabankloan,ifitwasdefaultedbyaSOE,thebankstaffmaybefreefromanyresponsibility,butifitwasdefaultedbyaPOE,thebankstaffmaybeinvestigatedforresponsibilitiesbythejudicialorgan.Forthefearofthelendingresponsibility,thecreditpersonnelactedveryprudentlyinspecificoperations,whichisfeaturedinrestrainedloans,complicatedprocedures,harshmortgageterms,overlystrictrequirementsonmortgagesandextremelylowmortgagerate.SomePOEssaidthattheyusuallyhadtospendahalfyear’stimeobtainingaloan,thushavingmissedlotsofbusinessopportunities.WithRMB550millionofitsowncapitalandRMB1billionofannualsales,ZhongdaIndustrialGroupinJiangsuProvincewasawardedthetitleofExcellentEnterprisebytheAgriculturalBankofChinaHeadOfficeandwasgrantedaloanquotaofRMB50million.Inpractice,however,thebusinessdepartmentoftheAgriculturalBankofChinaonlyallowedaloanofRMB30milliontoZhongdaGroup.

III.3GuaranteeCompaniesandVariousFundsAreUtterlyInadequate.
Atpresent,thereareover340,000SEBsinShanghai.Inthepasttwoyears,however,onlyover2000enterprises(includingstate-ownedandshareholdingenterprises)receivedfinancialservicesfromtheShanghaiBranchofChinaInvestmentGuaranteeCompany,theTechnologyExchange,theventureinvestmentcompaniesandallkindsofdistrict-andcounty-levelguaranteefunds.Bythebeginningof2000,theproportionoffinancingloansobtainedinallformsofguaranteeonlymadeuparound5%inShanghai,ofwhichloanstosmallenterprisesmerelytookup30%.Inotherwords,loansobtainedbysmallenterprisesthroughtheguaranteechannelonlyaccountedfor1.5%.InZhejiangProvince,despitealargenumberofguaranteeagencies,mostofthemonlyhavearegisteredcapitalrangingfromRMB3to5million.TakethetotalregisteredcapitalasRMB218millionandmultiplyitbyfive,itcouldonlyproduceaguaranteecapacityofRMB1billion,merely1.1%ofnewloansin2000intheprovince.InWuxiCity,JiangsuProvince,theregisteredcapitalofthe30,000POEswasRMB17.8billion.Ifmatchedona1:1basis,theworkingcapitalshortagewouldaggregateRMB12billion.However,theaggregatecapacityoftheguaranteeagenciesintheprovincewaslessthanRMB1.5billion.Moreover,asgenerallyreportedbyalllocalities,theguaranteefundsareoperatingonthinicebecausetheycannotpreventrisksforthemselves.Theyhavetomeettoostrictqualificationappraisalandcounter-guaranteerequirements,andgothroughverycomplicatedprocedures,whichnotonlyaddburdentoenterprisesbutalsoletslipbusinessopportunities.

III.4MaturityScheduleofB,