The last couple of months have been a time filled with huge numbers - First the $700 billion TARP of the United States, then expensive bailout plans for all the other major economies in the world.
Following the announcement of China's national-level $586-billion stimulus package, even more money has been promised by local governments in their own programs.
But so much money is going to be spent in more or less the same way - to boost government-led programs, to take over financial institutions, to bail out large industrial corporations, or to build large public projects.
But till now, very little has been heard about a working, or potentially workable, program for the small and medium-sized enterprises (SMEs). If all the export-oriented SMEs are trapped in the dwindling demand from their customers in the West, a situation for which hardly any remedy is available now, it is all the more reason to have policy devices to help the SMEs serving the domestic market.
Such devices will be of utmost importance to help the coastal cities rebuild their economies after the global financial crisis has cut their export opportunities and related jobs. In 2002, government figures suggested that SMEs were helping China sustained some 75 percent of its urban jobs.
Now, it is commonly believed that there are more than 10 million SMEs in China, which generate 60 percent of the nation's GDP and exports, while sustaining 75 percent of its urban jobs. These are just based on a rule of thumb. But they should be close to the reality.
SMEs tend to take an even larger share of the job market in the formerly under-developed regions. In Jiangxi, as much as 97 percent of its urban jobs are from the SMEs, especially those located in the industrial parks built by the local governments.
Industrial parks are useful ways both to help the SMEs and to generate tax revenues. But they are useful only for encouraging the manufacturers, who may have to close down their operations as a result of the current crisis.
More will have to be done for the SMEs outside the manufacturing business, if the economy as a whole has to shift to depending more on its internal demand, rather than external demand, for its continuing growth.
However, China has had little experience in helping its SMEs except building all the government-sponsored manufacturing zones, or industrial parks, as they are often called. Those parks help officials integrate the national development goal with their interest in expanding their own cities, and more often than not their ties with the local real estate developers, while still leaving ample room for the SMEs to seek their niche in the marketplace.
But outside the industrial parks, no such ready formula exists for the officials to kill many birds with just one stone. Tax cuts are usually the incentives. But they are essentially a promise not to place an extra burden (paying money to someone else after paying their suppliers) on the SMEs. They are still far from a protective system.
For years, SMEs have been plagued by an unfriendly regulatory environment - with difficulties securing the industry and commerce administration, in negotiating with tax officials over their tax burdens, in coping with all the extra-tax municipal charges and in accessing legal help (especially in labor disputes).
More importantly, credit service is often unavailable for the SMEs, despite China's reform and opening up for the past 30 years. Large banks are never designed to do business with individuals with small ventures, while small financial institutions are not allowed to grow to take over the space they have left out.
Credit co-ops are few and far between. Credit rating hardly exists as a public resource - with information that small companies can easily access when they come to deal with each other.
With some basic understanding of economics, no one can believe that the government can single-handedly free the economy from the dangers without inviting the participation of the SMEs, even though in normal times, the nation depends on them for more than half of its business.
E-mail: younuo@chinadaily.com.cn
(China Daily 12/29/2008 page4)
