China's policymakers need to set up a system to improve transparency of private companies and use innovative programs such as public-private partnership to encourage private participation in infrastructure projects, financial industry executives said at a session of the World Economic Forum on Wednesday in Tianjin.
Majority of the country's private companies are small and medium-sized enterprises (SMEs) and are underfunded, but it is not just the fault of the financial institutions for not financing them, said Wei Sun Christianson, CEO of Morgan Stanley China.
The SMEs contributed to 60 percent of China's GDP, 80 percent of the total jobs and 50 percent of the tax revenues, she said. "Alarmingly, only 3 percent of the 10 million SMEs have access to bank loans, that is something seriously wrong," Christianson said.
The difficulty in channeling the funds to these companies lies in evaluating their creditworthiness, because they lack collateral assets or guarantees and there is insufficient reliable credit information, according to Christianson.
It is getting more and more difficult to get reliable information about these companies in China, even about their balance sheets, debt levels or litigation records, she noted.
SME financing is key to long-term sustainability of an economy, but financing unlisted SMEs is as risky as financing a hedge fund, Victor Lu, chairman of Hong Kong-based First Eastern Investment Group, said during the session.
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