China's top banking regulator has encouraged commercial banks to provide financing to smaller companies, which have historically faced great difficulties in obtaining bank loans.

"The fundraising problem has become a major bottleneck that limits the development of small companies and this problem, if not resolved for the long term, will hurt the harmonious and sustainable development of China's economy," said Liu Mingkang, chairman of the China Banking Regulatory Commission.

In the next few years, more commercial banks are expected to shift their focus to small companies, which have greater potential for business growth, Liu said.

The banking commission would support such strategic changes, he added. It planned to review existing lending rules and would revise "unreasonable" terms that prevented small companies from getting bank loans, Liu said.

Liu's remarks were echoed by Wu Xiaoling, vice governor of the People's Bank of China, who said that small and medium-sized enterprises (SMEs) would be a new source of profit growth for commercial banks.

Wu said with the development of China's capital markets, more and more large-sized companies would choose to raise money in the stock or bond markets, but SMEs would continue to rely heavily on bank loans.

However, the central bank would not go so far as to set up a policy bank to specialize in providing loans to SMEs, said Wu.

(Shenzhen Daily April 19, 2005)