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Credit guarantees planned to back loans
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08:39, September 22, 2008

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Guangdong province plans to establish a 5 billion yuan industrial fund for advanced manufacturing operations.

The fund will be mainly used to finance small and medium-sized enterprises (SMEs) with innovative technologies, especially those involved in wind power and biomedicine.

The plan has been submitted to the National Development and Reform Commission for approval. The result is expected to be released by next month.

Once approved, the fund will help local SMEs, most of which are now privately financed, to better meet their needs for capital.

However, considering the mass of SMEs in the southern province, the number of beneficiaries will be relatively small.

Current difficulties facing exports have pushed many private companies to the verge of breakdown. Only a small number can get government financial aid, said Ding Li, director of Guangdong Academy of Social Sciences.

Foshan, less than 20 km south to the provincial capital Guangzhou, is a city with a host of private companies.

The city government now plans to launch a scheme in a bid to help them vie for the funds.

Under the plan, credit guarantee funds will be established in various districts of the city that provide an annual maximum credit line of 500 million yuan for small companies with outstanding performance and growth potential.

The approach calls for banks to provide loans ten times the sum of the credit guarantee fund. Loans will mostly be less than 15 million yuan for one year at the bench sub-prime interest rate released by the People's Bank of China.

The guarantee funds, cooperative guarantee institutes and banks will jointly build a mechanism to share risk information loan exposure. In the case of default, the three parties will share in the loss.

About 80 percent of the companies that will receive support from the fund are expected to be from Nanhai and Shunde districts of Foshan, areas rich in privately invested companies.

Funding SMEs with promising growth potential will help with financial difficulties and play an instrumental role in diversifying local industries, said Hong Jutao, vice-director of Nanhai district's development and reform commission.

By 2011, about 60 companies are expected to go public at home and abroad seeking to raise about 30 billion yuan.

Source: China Daily

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