Tuesday, September 4, 2007

Bad news for China growth PE: Beijing focused on improving credit to SMEs

The dirty little secret of Chinese PE investing was the potential to invest in small and medium sized profitable and fast growing companies - more or less out of the spotlight of government regulators and bureaucrats - with no competition from either banks or large global PE funds! It's a brilliant opportunity but of course it will go away at some point. Both the large PE funds and banks will catch on at some point. We've seen baby steps on the part of the Carlyles and TPGs and now we hear that the central government authorities have also figured this out. The good news (for foreign investors in the opportunity) is that Beijing still has not figured out the right button to push to get the big state-owned banks to do what they want them to do. So this juicy little niche should continue to be there for mid-size investors for the next five years or so.

The following article from China Daily:

Regulator tackles small firm financing

By Zhan Lisheng (China Daily)
Updated: 2007-09-01 10:21

The China Banking Regulatory Commission (CBRC) said on Friday it is taking steps to give small business better access to loans.

"Small business is playing an increasingly important role in the nation's economic development," said Liao Min, deputy director of the CBRC's general office, at a press briefing in Guangzhou on Friday.

"But they are still in a weaker position in terms of access to bank loans compared with large and medium-sized enterprises, especially the State-owned ones," he said.

Related readings:

Draft law to help financing of SMEs
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Liao said the CBRC has joined with the National Development and Reform Commission to abolish rules and remove obstacles restricting small businesses from applying to commercial banks for credit.

It is also improving policies and regulations on loans to small businesses, and mapping out new policies that reward banks which give credit to small firms.

"Improving financial services to small businesses and offering more tailored financial products will be a win-win for both the small firms and the banks."

Small businesses contribute over one-third of China's gross domestic product annually and have created jobs for 75 percent of the urban population and been responsible for 90 percent of new vacancies since the beginning of the 1990s.

"Small firms generally do not meet credit standards set for large and medium-sized enterprises; however, randomly lowering credit standards creates risk for commercial banks," he said. "Banking institutions need to find a balance between risk and profit."

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