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New funding rules for SMEs

By Qiu Chen  (Global Times)

08:13, June 15, 2012

The government will give special consideration to micro enterprises when it comes to allocating funds to small and medium-sized enterprises (SMEs), according to amended regulations issued by the Ministry of Finance and the Ministry of Industry and Information Technology (MIIT) recently.

Micro enterprises, defined as companies with annual revenues below 3 million yuan ($471,000) or fewer than 20 employees, are now a distinct class of SMEs under the new regulations and as such will be entitled to their own share of government subsidies instead of having to compete with larger peers for funding. This will encourage people to start their own businesses, promoting employment in the country, Wen Xiaodong, an expert on SMEs, told the Global Times.

The government launched a special fund to support SMEs in 2006. Currently SMEs form the backbone of China's economy, accounting for 60 percent of the country's GDP and 80 percent of its urban employment last year, according to data from the MIIT.

"Though government funding may not bring in much in direct returns, such as taxes, it has had a strong demonstrated effect on the market and shows Beijing's support for micro enterprises," Wen said.

Under the new guidelines, regulators have also lowered the funding ceiling for SMEs, including micro-sized firms, from 3 million yuan to 2 million, allowing more needy companies access to a share of special funds. China's special SME fund is also set to increase from 12.87 billion yuan to 14.17 billion yuan this year, according to a report released by the State Council in April.

However, Nie Riming, a research fellow at the Shanghai Institute of Finance and Law, argued that rather than subsidizing SMEs, the government should lower tax burdens for these enterprises or encourage venture capital to invest in these firms, letting the market determine which companies are most capable of success.

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