Small And Medium-Sized Textile Enterprises Suffer From Cyclical Austerity

Why do all previous tightening policies inevitably bring SMEs into the "money shortage" periodically? Why do large enterprises and big projects always get the advantage of financial resources? Why do grassroots financial institutions always stumble?

These problems are constantly troubling people.

Economists believe that these problems are related to the two element structure of finance.

According to the definition of economists, the two element structure of finance refers to the coexistence of formal finance and informal finance.

However, in China's special economic structure and financial system, the two element structure of finance has naturally been associated with the nature of the enterprise. Large enterprises and state-owned economy are more favored by formal finance in the system, while private enterprises and small and medium-sized enterprises can only be linked to grass-roots finance.

In order to explore the truth of the two element structure of finance, we have conducted in-depth interviews with the structural financing contradictions and phenomena brought about by the two financial structure, in order to analyze the internal causes of these contradictions and find possible paths to solve these contradictions.

Since today, a series of reports on the phenomenon of "two dimensional financial structure" will be launched continuously.

Business failure is now in Dongguan.

Recently, local senior

In Wujiang, Jiangsu, a well-known textile industry gathering area, small and medium-sized textile enterprises complained that under the pressure of high raw materials and labor costs, profit margins being squeezed and financing costs rising, some small businesses were struggling to survive, some chose to stop production, and some borrowed usury.

I recently visited two provinces in Jiangsu and Zhejiang and learned that although SMEs accounted for 85% to 90% of their contribution to employment, their financial support was seriously disconnected.

In the normal economic environment, small and medium-sized enterprises are facing the problem of financing difficulties. Once the policy is tightened, financing becomes even more difficult.

"Now, or in 2008 and 1998...

In the history of tightening policy, the first "sacrifice" is always small and medium-sized enterprises.

Guo Tianyong, a professor at the school of finance, Central University of Finance and Economics, said in an interview that China's SMEs are suffering from cyclical austerity. The root cause of this phenomenon is the increasingly prominent financial structure of our country, which is "two element structure" - limited financial resources are always invested in large enterprises and big projects that the government is inclined to develop. SMEs inevitably fall into "money shortage" periodically.

"Under the relaxed policy environment, we actively expand production, creating the same value as big enterprises, but when they are tight, they always fall first."

In Wujiang, Jiangsu, a small and medium-sized textile enterprise manager in distress said to me.

"2009 to 2010

Contrary to this heat, the reduction of domestic and foreign demand and the tightening of financing forms in the tight environment.

Shen Bin, deputy director of the Wujiang small and Medium Enterprises Bureau, said in an interview with the media, "from Jiangsu and Zhejiang chemical fiber industries, the new production capacity in 2011 reached 60%, and our statistical data showed that there was no significant growth in domestic and foreign demand."

Ba Shu song, deputy director of the Finance Research Institute of the State Council Development Research Center, used "overshoot" to describe the situation of small and medium-sized private enterprises in a tight environment.

He said that the possibility of overshooting in China's economy is relatively high.

The real capital interest rate obtained by enterprises from the financial system is the real pressure of tightening rather than official interest rates.

From the Yangtze River Delta and the Pearl River Delta, the two most dynamic regions of China's economy, the cost of obtaining capital by private enterprises is almost the same as that in 2007 and 2008, but the real economy was much stronger than it is now, such as GDP growth of 14.2% in 2007 and strong external economic growth.

"So this part of the tightening efforts are relatively large, if such a sustained strength, some enterprises will have a greater impact."

He said.

The information provided by a Wenzhou branch of the Banking Supervision Bureau showed that the Wenzhou economic and Trade Commission recently found that enterprises with a tight capital account accounted for 42.9% of the enterprises' capital side survey, and the average corporate funding gap was about 10%, while the loan satisfaction rate of the enterprises was only 57.4%.

On the one hand, monetary policy is constantly tightening, and on the other hand, small and medium-sized enterprises are thirsty for capital, which makes the source of funds for small and medium enterprises more inclined to private lending.

A sample survey of 350 enterprises by Wenzhou finance office shows that at the end of the first quarter, the ratio of three funds of self owned funds, bank loans and private loans is 56:28:16, and the bank's operating capital composition is

"In this case, the capital chain of small businesses is relatively fragile."

Zhou Qingming, chief supervisor of Wenzhou Banking Supervision Bureau, said that the demand for funds for SMEs was large, the difficulty of financing increased, the cost of financing rose generally, and the receivables withdrawal cycle of enterprises was extended, and capital turnover became tense.

In view of the main role of banks in China's financial system, it has an unshirkable responsibility for the "austerity" of SMEs. Although banks often publicize their credit support to small and medium-sized enterprises, a limited amount of loan amount in a tight environment always tends to flow to a larger business customer and government project in a tight environment.

"When we went to the banking industry in Zhejiang, we found that in the first half of the year, the number of SMEs seeking loans from banks was 2 to 3 times that of last year, and lending by banks was more prudent than last year," he said.

Guo Tianyong, a professor at the school of finance, Central University of Finance and Economics, told the economic reference daily that although the financing difficulties of SMEs are common in many countries, China's response is rather prominent.

According to the recent sample survey of 350 small and medium-sized enterprises in Wenzhou Finance Office of Zhejiang Province, 18% of the enterprises' capital chain is very fragile, and it may become the object of bank lending.

At the same time, 25 growing small businesses only have 133 million yuan from bank financing, accounting for 18.5% of the 24 key leading enterprises' bank loans.

"Banks are now asking companies to lend money and then deposit them in the bank immediately, then use the certificates of deposit as collateral and then lend them one time, which doubles the financing cost of enterprises and the annual loan interest rate is about 12 to 13%.

The average profit of the small and medium-sized enterprises is not more than 10%, which can not afford such a high cost of capital. For banks, their risks are even greater. "

The bank account manager told the author.

Why do private and small and medium-sized economies suffer from the tightening of economic policies? Private and grassroots financial institutions are always excluded.

Guo Tianyong believes that this is a painful process that must be experienced by developing countries in the process of economic take-off, and the breakthrough is the timely pformation of the role of the government.

Guo Tianyong uses the theory of financial repression to explain the internal causes of "austerity" in small and medium-sized enterprises: there is widespread financial repression in developing countries. In the catch-up stage of economic takeoff, the role played by the government is more important. It needs to control limited financial resources and invest money in industries and projects that the government is inclined to develop.

"And the result of financial repression is that the government wants to reduce the cost of state and government projects to the lowest cost. Therefore, the interest rate level of financial institutions is suppressed. There is a gap between the real interest rate and the nominal interest rate of financial institutions. Private and small and medium-sized economies that are not consistent with government projects and government investment goals can only bear higher real interest rates. At this stage, the development of private and grassroots financial institutions for the latter is also bound to be excluded -- the two element structure of finance is inevitable.

From the Yangtze River Delta and the Pearl River Delta, the two most dynamic regions of China's economy, the cost of obtaining capital by private enterprises is almost the same as that in 2007 and 2008, but the real economy was much stronger than it is now, such as GDP growth of 14.2% in 2007 and strong external economic growth.

"So this part of the tightening efforts are relatively large, if such a sustained strength, some enterprises will have a greater impact."

He said.

The information provided by a Wenzhou branch of the Banking Supervision Bureau showed that the Wenzhou economic and Trade Commission recently found that enterprises with a tight capital account accounted for 42.9% of the enterprises' capital side survey, and the average corporate funding gap was about 10%, while the loan satisfaction rate of the enterprises was only 57.4%.

On the one hand, monetary policy is constantly tightening, and on the other hand, small and medium-sized enterprises are thirsty for capital, which makes the source of funds for small and medium enterprises more inclined to private lending.

A sample survey of 350 enterprises by the Wenzhou finance office showed that at the end of the first quarter, the proportion of the three funds of the enterprise's operating capital, its own funds, bank loans and private lending was 56:28:16, and the proportion of bank loans decreased by 2 percentage points compared with the same period last year, down 4 percentage points compared with the beginning of the year.

The proportion of private lending increased gradually, which increased by 6 percentage points and 4 percentage points respectively over the same period of last year and the beginning of this year.

"In this case, the capital chain of small businesses is relatively fragile."

Zhou Qingming, chief supervisor of Wenzhou Banking Supervision Bureau, said that the demand for funds for SMEs was large, the difficulty of financing increased, the cost of financing rose generally, and the receivables withdrawal cycle of enterprises was extended, and capital turnover became tense.

In view of the main role of banks in China's financial system, it has an unshirkable responsibility for the "austerity" of SMEs. Although banks often publicize their credit support to small and medium-sized enterprises, a limited amount of loan amount in a tight environment always tends to flow to a larger business customer and government project in a tight environment.

"When we went to the banking industry in Zhejiang, we found that in the first half of the year, the number of SMEs seeking loans from banks was 2 to 3 times that of last year, and lending by banks was more prudent than last year," he said.

Guo Tianyong, a professor at the school of finance, Central University of Finance and Economics, told the economic reference daily that although the financing difficulties of SMEs are common in many countries, China's response is rather prominent.

According to the recent sample survey of 350 small and medium-sized enterprises in Wenzhou Finance Office of Zhejiang Province, 18% of the enterprises' capital chain is very fragile, and it may become the object of bank lending.

At the same time, 25 growing small businesses only have 133 million yuan from bank financing, accounting for 18.5% of the 24 key leading enterprises' bank loans.

"Banks are now asking companies to lend money and then deposit them in the bank immediately, then use the certificates of deposit as collateral and then lend them one time, which doubles the financing cost of enterprises and the annual loan interest rate is about 12 to 13%.

The average profit of the small and medium-sized enterprises is not more than 10%, which can not afford such a high cost of capital. For banks, their risks are even greater. "

The bank account manager told the author.

Why do private and small and medium-sized economies suffer from the tightening of economic policies? Private and grassroots financial institutions are always excluded.

Guo Tianyong believes that this is a painful process that must be experienced by developing countries in the process of economic take-off, and the breakthrough is the timely pformation of the role of the government.

Guo Tianyong uses the theory of financial repression to explain the internal causes of "austerity" in small and medium-sized enterprises: there is widespread financial repression in developing countries. In the catch-up stage of economic takeoff, the role played by the government is more important. It needs to control limited financial resources and invest money in industries and projects that the government is inclined to develop.

"And the result of financial repression is that the government wants to reduce the cost of state and government projects to the lowest cost. Therefore, the interest rate level of financial institutions is suppressed. There is a gap between the real interest rate and the nominal interest rate of financial institutions. Private and small and medium-sized economies that are not consistent with government projects and government investment goals can only bear higher real interest rates. At this stage, the development of private and grassroots financial institutions for the latter is also bound to be excluded -- the two element structure of finance is inevitable.

]

How can we get out of the vicious circle of financial repression? Guo Tianyong believes that after the development stage of economic development, the government's power should fade away. It is necessary to turn the driving force of economic growth to the market itself, to private capital and social capital - the adjustment of economic structure put forward by our country and the realization of endogenous growth, that is, the so-called financial deepening.

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"The difficulty in the process of financial repression and financial deepening is the pformation of the government."

Guo Tianyong said, at present, the reasons why the government is unwilling to surrender the baton is more complicated: first, the government tends to think it is more efficient than the market; second, the government is worried that if it lets go, the economy will collapse; third, the power of the government to surrender the baton will be greatly weakened and no way to be in a strong position.

All these factors are unresolved factors in the two element structure of China's finance.