Small business policies need structural reform

By Zhang Lijuan
0 Comment(s)Print E-mail, November 1, 2011
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[By Zhuang Hao/]

Small businesses are a vital force behind China's economic sustainability. That is why the Chinese government moved recently to rescue small businesses in Wenzhou, Zhejiang Province, after a string of bankruptcies related to high-interest informal lending.

But the government bailout won't solve key problems that small businesses face. The only way to make small business successful is to foster entrepreneurship by taking comprehensive policy measures. Otherwise, China will not achieve sustainable economic growth.

China's export sector, driven primarily by small firms, has suffered dramatically since the financial crisis swept the globe in 2008. Despite continued growth, banks have refused to provide small businesses in southern China with adequate lending, leaving the firms woefully short of cash.

Chinese banks are hesitant to provide loans to entrepreneurs looking to start a new business or expand a small firm. Clearly, pipelines to deliver capital to qualified small enterprises in China are lacking, and this has been a bottleneck of business development for decades. But that is not the issue here.

A local entrepreneur recently told me he is extremely frustrated with how local administrative officials have imposed their authority on his business and how much money he has to spend dealing with bureaucrats. In China, small business owners face increasing pressure from government red tape.

All too often, entrepreneurs must build strong relationships with the local officials and other administrative agencies to run a business. Conditions for small business loans are even more arbitrary and bureaucratic.

The failings of China's business environment are reflected in polls of would-be entrepreneurs. If you ask Chinese college graduates today whether they are willing to start up a business, they will almost always say no. They have seen how hard it is in China for small business owners, and they lack a solid understanding of how business works.

Most Chinese college students spend their time preparing for various exams hoping to score jobs at government agencies or state-owned banks. They don't stay of late drawing up business plans and searching for money to start their own company.

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