The government of Dongguan, Guangdong, recently resolved to set up an Rmb1 billion fund to help ease the financial difficulties of small and medium-sized enterprises (SMEs) and processing trade enterprises. The plan will be put into action as soon as it is approved by the municipal people's congress.

Qualified applicants must meet three requirements. First, they must be industrial enterprises with an annual sales volume of no less than Rmb300 million. No limit is set for processing enterprises. Second, they should have no record of bad credit. Third, they must be independent legal persons registered with the industry and commerce administration of Dongguan, or are paying tax in Dongguan.

Hong Kong Enterprises Call for Direct Interest Subsidy

The new financial relief programme concerns the vital interest of Hong Kong companies and is closely watched by Hong Kong companies in Dongguan. Many of them were happy to hear that the government was subsidising the local financial institutions to minimise their loan risks. They said it was good news for Hong Kong companies and hoped it would not be quite as difficult for them to apply for loans from mainland commercial banks in future.

Dongguan is mulling over the establishment of a "bank loan risk compensation fund" mechanism. Industry sources believed that the Rmb1 billion fund being set up would cover this mechanism. Most Hong Kong companies in Dongguan did not subscribe to the idea. They thought it was good for the government to bail out enterprises in financial difficulties, but it would be better for the government to offer them interest subsidy directly rather than subsidising the banks and other financial institutions. They believed the “risk compensation fund” should receive allocations from the financial bureau.

Dongguan officials said local banks lost their drive for SME loans because some foreign-invested enterprises repeatedly defaulted on their repayment. The present support policy will not fundamentally resolve their financing difficulties. They reckoned SMEs in Dongguan should look inwardly for reasons why their loan applications were rejected and should see that one of the most important reasons was their profit level and prospects.