If I Don't Borrow, I Die; If I Borrow, I Court Death

China has a massive savings rate, but companies struggle to obtain capital at sky high rates of interest because China's capital is misallocated by central and local government intervention in the economy. Every unfinished or empty building, every steel mill that can't turn a profit, are all misallocated capital that could be flowing through the economy. Instead, these vampires demand more capital to stay alive, and thanks to the structure of the Chinese economy, they're able to obtain capital at far cheaper rates than small private businesses.

Cao's situation is not an individual case, the Democratic National Construction Association during the lianghui this year released a research report that showed only about 10% of small and micro enterprises can obtain loans from banks, interest rates generally go up to about 30%, the cost of financing is about 15%. The remaining 90% of small and micro enterprises mainly rely on private lending and small loan companies to obtain funds, financing costs about 25%, emergency type of bridge loan rate is as high as 40%.

The current average profit margin of small and micro businesses is between 8% and 10%, for loans above 10% of the cost of capital, small and micro enterprises is difficult to bear the long-term. High cost of financing squeeze corporate profit margins narrow, a lot in "The Crossing Guard" of small and micro enterprises into a "did not hesitate to die, to borrow money to court death," the credit tangled.

Many people did not understand: after a series of national RRR, interest rate movements, borrowing costs for small businesses Why still high?

"While the recent inter-bank market liquidity conditions relatively loose, money market interest rates dropped significantly, but not necessarily synchronized reduce financing costs." Bank of Communications chief economist Lian Ping said that with the interest rate liberalization, financial disintermediation and development of Internet finance in recent years, bank deposit growth is slowing down, banks use financial products and other means to absorb deposits, pushing up the cost of bank debt and hinder to a certain extent the pace of reducing lending rates.

In addition, finance and investment will increase as the population and real estate market continued to pick up, some of the released liquidity did not go into the real economy. Central University of Finance and Bank of China Industry Research Center, Guo Tian Yong believes that the limited amount of funds in the market to ease the high cost of corporate financing situation, we must optimize the flow of credit, if the majority of funds into the real estate market will naturally be push up the cost of business capital.

"In the current public under the entrepreneurship, the highly innovative background, should like to support the import and export, agriculture and infrastructure financing as support for small and micro enterprises. "Lian Ping suggested that the state should set up a special policy for small and micro enterprises in banks, through financial discount, targeted easing and other measures, the small micro-enterprise loans real interest rates down. Interest Rates policy banks making decisions that can affect the market to a large extent, and thus play a stabilizing role in financing costs.

...Guangdong Development Bank recently released "White Paper on China's small and micro enterprises," shows that 55% of small and micro business owners want to be able to complete the loan process within a week, otherwise it will affect the normal operation of enterprises. Companies with annual revenues of more than 20 million yuan have relatively strong time tolerance, but on average they is also required loans be resolved within 14 days.

...For example, the start-up of small and micro enterprises, financing risk is relatively large, the small loan companies, a small micro-enterprise credit NPL ratio of 3% -5% is normal phenomenon, but large listed banks difficult to accept this, so the higher risk tolerance listed banks to small and micro enterprises play a major credit business is inappropriate.

...According to estimates, small loan company's current loan interest rate is generally about 20%, although higher than the bank, but because of high operating costs, results in lower profit attributable to the micro finance company's operating profit, sometimes even smaller than traditional manufacturing. In pursuit of higher profits, some small loan companies will also sights high profits "big order", the Bank of tracking data show that in some places began to appear "small loan is not small", the individual provinces household loans more than 50 million business accounted for more than 90%.

iFeng: 党媒谈定向降准降息:银行只顾风险 小微企业仍难贷款

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