BIZCHINA> Review & Analysis
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BIZCHINA> Review & Analysis
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Restructure SMEs, take industries to new areas
By Sun Lijian (China Daily)
Updated: 2008-09-05 14:09 The subprime crisis has had the US market shrink a lot and a large quantity of financial capital re-oriented to commodity markets or emerging economies, stirring greater fluctuations in the prices for the crude oil futures and assets in emerging economies. Obviously, China's export-oriented development mode was affected greatly as the crisis imposed too much pressure on a driving force of the country's economic development - small- and medium-sized enterprises (SMEs).
These enterprises' profit margins have been greatly reduced by the rising manufacturing costs. Some firms had to suspend production or even close down due to rising costs and shrinking external demand. The harsh reality warns the authorities that the decades-old mode of economic development must be changed and improved so that the whole society's ability to withstand external economic shocks can be bolstered. To be specific, the country must develop a domestic consumption- and innovation-led growth mode. To that end, the government must speed up industrial restructuring and improve people's income. And most importantly, measures must be taken to help the SMEs that are enduring hardships. Yet there came some good news recently as substantial progresses have been made in this regard. First, the government subsidizes part of these enterprises' financing cost through its fiscal policy. Once these firms are granted greater space in financing, they can save more money to transfer themselves to other production since an industrial transformation might be much easier for them than for large-scale companies. The policy may lead to improved efficiency of macro-economy and relieve pressure on employment. Second, attention has also been paid to maintaining and stabilizing the monetary policy, even though at a time of severe inflationary pressure the call to loosen the monetary control is quite high. The government chose to widen loan channels for small and medium-sized enterprises rather than completely loosen the tight monetary policy, like interest cut, repurchasing of bonds and cutting of banks' deposit reserve ratio. (For more biz stories, please visit Industries)
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