Financial Dilemma of SME in Shanghai, China. By Eugene Lim eugene.lim@sbc-usst.edu.cn

The Parts of Topic Abstracts Introduction Importance of SME in economy SME in China Difficulty of SME Financing in China Capital structure in China SMEs Conclusion Notice the preprocessor directives and how they use <> Really important is the use of semicolons…..Must learn when to use them and when not to. Pay really close attention to the organization of the program. A good program uses indentions, line spacing, and is aligned in a logical way.

Abstracts The purpose of this paper is to provide an overall scenario of the financing for the small firms in Shanghai and also the difficulty faced by the enterprise in financing their business. Surveys of thirty SMEs were conducted between June and August, 2016 to determine the factor for SMEs generally influence the secured loan. The feedback were analysed and discussed later. The finding will show that the type of financial resources that SMEs would prefer when there is a funding shortage. The analysis interpretation and discussion basically support the financial theories and understanding of current issues for SME in business financing. A Leading Provider of International Education in China

Introduction SME created more than a rate of 75% employment opportunities in China and contributed to a higher number of Chinese GDP which is at 55.6% (He & Cao, 2007). 99.3% of registered firm in China is belong to SME which contributed to 62.3% export according to China National Bureau Statistics. In the future, dynamic and vibrant SMEs brought the economy from classical to market economy and showing to the world the greatest of China entrepreneur and the RMB currency. A Leading Provider of International Education in China

Importance of SME in economy Government loosen the regulation of setting up SMEs since 1990. SMEs China represent the global engines of economic growth Produce large quantities, invest in new technology, adapt new economy and expansion. Internal and external funds in financing. Engage in business activities using either money from within a company or from outside. External funding either going into debt or giving up control Type of external financing used by SME such as bank loan, venture capitalists and shadow banking in investment A Leading Provider of International Education in China

Bank Loan China Banking System consists of f large Stated Owned Commercial Bank (SOCB) BOC, ICBC, ABC, CCB, BOCOM The financial environment also made up by all 3 policy banks, 12 joint-stock commercial banks, 124 city commercial bank, 42 urban credit cooperatives, 17 rural commercial banks and 113 rural cooperative banks. The banking system controlled by central bank of China which is called People's Bank of China A Leading Provider of International Education in China

Bank Loan Commercial bank offers two types of loan to SME one-time loan and stepped loan SME had less opportunity in getting loan compared to least efficient SOE (State Owned Enterprise) in the last ten years SME with a good cash flow and healthy balance sheet has a high percentages to apply for business loan Bank also considered the loan if the debt-to-equity rate is minimum. SME also easily get loan in environmental, agriculture, healthcare, and nanotechnology industry recent years. A Leading Provider of International Education in China

Factors that affected a bank loan Types of difficulty Sample Mean Rank Company Size 3.5625 3 Relationship with Government 2.4375 8 Company financial situation 3.7500 1 Age of the company 3.1250 6 Relationship with bank officers 3.5000 4 Types of ownership 3.3750 5 Types of industry 2.9375 7 Debt Percentage 3.6875 2 A Leading Provider of International Education in China

Venture Capitalist SME in China tends to get the fund from the firm at the second stage of development. The pool of money came from high net worth people, pension, foreign investors and SME has to pay 25% of the profits earned to venture capitalists Liu, Zhang & Hu, 2016 commented that 40 percent of the invested project making a brilliant profit and 50 percent is at break even. Some SME does use the assistance of venture firm on purpose because they have a strong relationship with government representatives. A Leading Provider of International Education in China

Shadow banking Informal finance, online peer-to-peer (P2P) platforms, micro-finance institution and legally registered non-banking financial institution (NBFI) Not an illegal banking system, not monitored by CBRC (Central Banking Regulatory Commission) Monitored by Industrial Commercial and Management Bureau. Jiang, 2009 said that there are eight types of NBFIs in China Credit guarantee companies, leasing companies, small loan companies, pawn shop, trust companies, rural mutual aid funds, P2P lending platforms and crowd funding platforms A Leading Provider of International Education in China

Shadow Banking Majority of the NBFIs belong to Credit Guarantee, pawn shops and small loan companies which contributed at 25,000 registered companies as on 2015. Does not deal with deposit transactions and interest rate does not permitted more than four times of lending rate set by central bank. Desperate fund (not protected by law) Underground finance - “grey” finance type Illegal finance - “fraud” harmful to banking law Unobserved finance - not captured in the National Accounting Information System (NAIS) A Leading Provider of International Education in China

SMEs in China Zhang, 2004 wrote on Caijing Magazine stated that most SMEs focus more on domestic market rather than international market. SMEs focus mostly labour intensive rather than technological industry. Recently, there have been promotion given to China SMEs by the government. Government given huge investment into certain area such as maintenance and design, environmental, logistics and transport. The productivity and quality increased with less capital compared to SOE (State Owned Enterprise) A Leading Provider of International Education in China

Difficulty of SME Financing External and internal finance Structure of financial structure Political problem Taxation and investment policy Rate of credit Accounting and auditing system Scale of economy Existence of collateral to banks A Leading Provider of International Education in China

Capital structure in China SMEs Transform from a command economy to a market economy. Government monitored closely China Stock Exchange (Huang & Song 2006). SME used capital market to get listed in the market. SMEs in China used IPO (Initial Public Offering) in developing the market. More than 50 percent private sectors contributed to China GDP but receive less than 20 percent of bank lending (Li, 2009a). Li said that there exists around 40 percent of private sector has informal financing accounts. A Leading Provider of International Education in China

Preference of financial theories for expansion A Leading Provider of International Education in China

Conclusion SME prefer bank loan as their first choice used in business growth rather than equity financing. Company background, debt ratio and company size influence Chinese banks when they issue the loan the SMEs in China. The relationship with government officers marked a very low mean level in the point scale survey. Big size industry such as manufacturing has a better chances to get finance from bank as they have more tangible assets compared to other industries. A Leading Provider of International Education in China

Thank you and all comments can be send to my email eugene.lim@sbc-usst.edu.cn A Leading Provider of International Education in China