A draft law on the promotion of SMEs demands the central budget allocate special funds to aid SMEs in their pursuit for credit guarantee.

It was submitted to the Standing Committee of the National People's Congress (NPC) - China's top legislature - for preliminary reading in December.

SMEs, accounting for 95 per cent of all Chinese enterprises, have played an indispensable role in invigorating the national economy and maintaining social stability by promoting market competition, increasing job opportunities and pushing forward technical innovation, said Zeng Xianlin, vice-director of the NPC Financial and Economic Committee.

These enterprises have offered three-quarters of urban job opportunities during the nation's economic transformation process, providing jobs to more than 230 million labourers from rural areas between 1976 and last year, according to committee figures.

However, Zeng said these enterprises have faced more difficulties than large enterprises in receiving funding, raising their technological levels, attracting qualified professional personnel and accessing information.

"They will meet more intense competition now that China has entered the World Trade Organization," Zeng said, adding it is a common practice of market economies to pass legislation for the promotion of such enterprises.

The special funds from the central budget are also designed to offer guidance and service for the creation of SMEs, information consultation and training of employees, as well as support for technical innovation and the promotion of international markets, said Zhu Shaoping, a division chief with Zeng's committee.

Zhu said great difficulty in getting loans, the slow accumulation of original capital, and the lack of powerful policy orientation in investment are three major problems facing Chinese SMEs.

The special fund will offer long-term and stable monetary support for the development of these enterprises, Zhu said.

The draft law has also made provisions on the establishment of credit guaranty institutions for the SMEs to lower the credit risks of commercial banks and encourage financial institutions to increase loans to the SMEs, Zhu said.

A trial operation to set up credit guarantee institutions for SMEs has been conducted in more than 100 cities in China and a 6 billion yuan (US$725 million) security fund has been used, indicate committee figures.

(China Daily February 19, 2002)