The Rupp Report: China Is Discovering Its Small And Medium-Sized Enterprises

Some people think that China is not only a country, but also a big factory. Especially in textile
production, China has the image of being a land of extremely large companies with tens of thousands
of employees in every factory. For the last two decades, this image has been nourished by the fact
that customers from the West could only order big or very big quantities of textile products; and
consequently, the exports from China flooded over the globe.

On the other hand, in Western countries, textiles are still a business of more small and
medium-sized enterprises (SMEs). An excellent example is Italy, particularly the Italian textile
machinery industry. According to information from the Association of Italian Textile Machinery
Manufacturers (ACIMIT), most of the 150 member companies are small and medium-sized, very
straight-thinking companies, working for many generations in the same business.

New View In Sight

This up-to-date orientation toward “only big is beautiful” could change soon: The recent
small dent in the textile industry and other business sectors of the Middle Kingdom shows also a
current trend to smaller lots and more flexible production. This was and is the chance for
neighboring countries to take some business away from China to other small tigers around the big
tiger nation. Some days ago, is was officially announced that China’s Cabinet is willing to provide
more support to small and even micro-sized businesses through increased financing innovation and
credit for the private sector.

Eight Targets

The State Council has released eight detailed targets and explains that the credit growth
rate for SMEs cannot be below the national average lending rate. At the same time, the gradual
amount shouldn’t be less than the amount that was borrowed last year. On this subject, Tan Yaling,
head of the China Foreign Exchange Investment Research Institute, made a remarkable comment: she
said that “policy makers have made a point of reiterating the policies to show the government’s
resolution in supporting small and micro-sized businesses.” She added that all eight targets, or
policies, have already been issued.

These targets include the recent doing away with the value-added tax for businesses whose
monthly revenues fall below 20,000 yuan, among other steps. However, Tan emphasized the most
important issue for small Chinese companies is credit access. Many Chinese banks do not want to
provide loans to companies if interest payments won’t provide a large return. However, this is not
only a problem for SMEs in China, but in Western countries as well.


In most businesses, communication is the key word. Of great importance, Tan said, is to
coordinate the interaction between small financial institutions and SMEs. As she pointed out:
“Financial institutions over the course of their developments have not addressed the SME financing
woes or just ignore their demands. This time the State Council has specifically cited small
financial institutions to tackle the problem faced by SMEs.” This is quite a clear statement.

And the next move, which is very well-known in the Western banking world, is to request that
private banks, financial leasing enterprises and consumer financial companies establish branches in
locations near concentrations of small businesses. In addition, policymakers have promised make
greater efforts to ensure that small businesses are not hit with “unreasonable charges.”

Reshuffling The Cards

Many of the above-mentioned details and problems could also be tackled in the West; for
example, “unreasonable charges” by the banks sounds very familiar. The recent economic slowdown has
led the Chinese government to turn its attention toward small business expansion as it tries to
increase domestic demand and employment. Chinese officials have probably realized that SMEs are
still the pillar and cornerstone of a healthy economy.

It may be surprising to Western people that 99 percent of Chinese companies are small or
medium-sized enterprises. And furthermore, they account for 80 percent of all jobs in cities and 60
percent of the country’s economic output.

The shift in Chinese financial policy is quite remarkable and could activate the business
environment in the Asia-Pacific Rim. It may reshuffle the cards of competitiveness among countries
in the region when it comes to entrepreneurship, flexibility and just-in-time delivery in the
Chinese textile industry.

August 20, 2013