The failure of China’s SME program

CHINA ADVISORY - Report 12 Jun 2020 by Andrew Collier

The success of China’s stimulus measures will depend on the ability of the financial system to deliver capital to the most profitable – and highest employing – sectors. Is China successful in this? The anecdotal information suggests that loans to small businesses don’t always reach the best customers. Some of the macro data shows state firms continuing to receive the lion’s share of loans.

In this report, we analyze several measures of capital according to sector and size of company and try to correlate with capital flows. We conclude that the program has been less than successful due to the inefficiencies of China’s financial system. This explains the move to generate growth through broader fiscal measures.

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