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Report: Environment Still Poor for SMEs

China has made notable improvements in streamlining administrative barriers to trading, and has also made progress in hiring and firing workers over the past two years. But it is still a difficult place to do business, particularly for domestic small and medium-sized enterprises (SMEs).


So says "Doing Business in 2006," a report sponsored by the World Bank and International Finance Corporation (IFC), the private sector arm of the World Bank Group.


The annual report, which for the first time provides a global ranking of 155 economies, tracks a set of regulatory indicators related to business start-up, operation, trade, payment of taxes, and closure by measuring the time and cost associated with various government requirements.


China came in 91 out of 155 countries in terms of ease of doing business. New Zealand was first, Singapore second and the United States third.


According to the report, China's strengths are in its trading across borders, starting a business, and closing a business. It lags behind in areas such as access to credit, dealing with licenses, and protecting investors. In particular, China has a long way to go to promote good corporate governance including public information disclosure, setting up transparent boards of directors, and protecting the rights of minority shareholders, said Randall Riopelle, principal investment officer for IFC in Beijing.


Last year's report only listed the top 30 countries and the bottom 30 countries; China was on neither of those lists.


This year's report updates the work of last year on seven sets of business environment indicators: starting a business, hiring and firing workers, enforcing contracts, registering property, getting credit, protecting investors, and closing a business. It has expanded the research to 155 countries and adds three new indicators: dealing with business licenses, trading across borders, and paying taxes.


The report says China is ahead of some neighbouring countries in import/export procedures. It has streamlined administrative processes involved in trading, making it easier to trade.


For example, to export from China, one must fill out six different documents and get seven different signatures, with the average time to export being 20 days. In India, one needs to fill in 10 documents and get 22 signatures, with an average export time of 36 days.


However, overall, the report said China has been relatively inactive in terms of reforming business regulations. Compared with other East Asian countries, especially those in the top 10, like Singapore, China has a lot of work to do to make it easier for SMEs to access credit and operate their businesses.


Progress underway


However, the data for all sets of indicators in this year's report were for January 2005, and recent improvements were not taken into consideration.


For example, China's central bank established a basic database of individual credit information in pilot cities late last year.


Furthermore, a central bank official was reported to have revealed that a nationwide credit information system would be established by the end of this year.


The central bank also issued a guidance circular in July urging the country's commercial lenders to give more help to SMEs which need bank loans.


Riopelle said he believed China was on the right track and progress was underway, but until the changes were finalized and implemented they wouldn't show up in the 'Doing Business' indicators.


The annual report gives policymakers the ability to measure regulatory performance in comparison with other countries, learn from best practices globally, and prioritize reforms. Now in its third year, the report has already had an impact on business environment reforms around the world.


Three East Asian economies were in the top 10: Singapore came in second, Hong Kong seventh, and Japan tenth.


"The Doing Business benchmarking has inspired and supported reforms in more than 20 countries, and since last year, nine governments have asked for their countries to be included in the Doing Business analysis," said Caralee McLiesh, an author of the report.


The report does not track variables such as macroeconomic policy, the quality of infrastructure, currency volatility, investor perceptions, or crime rates. It focused on the legal and regulatory business environment for domestic SMEs rather than foreign invested companies.


(China Daily September 15, 2005)


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