Small enterprises in China's coastal areas are borrowing from friends and relatives or paying high interest to private lenders because of their difficulty in getting loans from banks, a survey revealed yesterday.
Only a third of China's small businesses in the Yangtze River delta region said they received loans from a commercial bank in 2011, while 47 percent said they borrowed from relatives and friends and 23 percent said went to private lenders, according to a survey conducted by Peking University's National School of Development and Alibaba Group.
The survey covered more than 8,500 companies with an annual turnover below 300 million yuan (US$47.6 million) in the Yangtze River delta region, the Pearl River delta region and the Bohai Economic Rim.
In the Pearl River delta region and the Bohai Economic Rim, fewer than 30 percent of respondents said they were able to get money from formal financial institutions.
Respondents said that their cost for borrowing money last year was more than 10 percentage points higher than in 2010, according to the survey.
"Rising operational costs, falling new orders and liquidity strains are the three major problems affecting small coastal enterprises," it said. "There is no way for small enterprises with an annual turnover below 10 million yuan and those in need of less than 1 million yuan to get loans from commercial banks under the current system."
Fewer than 30 percent of the respondents in the Pearl River delta region and the Bohai Economic Rim expected higher profits in the six months after they were interviewed, the survey found.
In October, China vowed to increase bank loans to small enterprises and said a month later it would legalize private lending in a bid to support development of private companies, which, though small, employ nearly 80 percent of China's workforce.
Referring to individuals, enterprises and other organizations that are not part of the current financial system, an unidentified central bank official in November recognized private lenders' roles in supporting small and medium-sized enterprises and the agricultural sector, which have been somewhat neglected by formal financial institutions under China's tight restrictions on credit.
But the survey found that policies meant to increase financial support for small enterprises had not proved effective by the end of last year.
Most of the small enterprises are eligible for preferential policies. "They are demanding more solid implementation of the policies," the survey said.
Last month, a survey by Ernst & Young showed that even China's top private firms were calling for a reform of the banking system to make fundraising easier.
A third of the 100 top private firms in China have made the same or less profit in 2011 compared with the year earlier amid fast inflation, tight monetary policies and sluggish global economy, the survey said.