A. Professor Chunxu Liu

Research on the Construction of the multi-level capital market and the Development of small & medium-scaled enterprises A. Professor Chunxu Liu

Contents Part one The Construction of the multi-level capital market • 1. The status of capital market in China • 2. The intention of multi-level capital market system • 3. The necessities of building up multi-level capital market in China • 4. Comparison between domestic multi-level capital market and foreign market • 5. Prospect of construction of multi-level capital market in China Part two The development of small & medium-scaled enterprises • 1. Definition, position and function of small & medium • scaled enterprise • 2. Difficulties in financing of small and medium-scaled enterprises and causes analysis • 3. Countermeasures to financing of small & medium scaled enterprises

Status of our capital market • Shanghai Securities Exchange was established in Dec. 1990 and Shenzhen Securities Exchange in Jun. 1991 • 《Special Stock temporary administration in Shenzhen》 on public in Dec 5, 1991. The ceremony of contract about Special stock of RMB (B Share) underwrite overseas was held in Dec.18 . • Shanghai Securities Exchange declared 《The Regulation of B Share in dealing and liquidating 》in Jan. 1992. • 《Rules for Public on board in Shenzhen Securities Exchange》 was published in Dec.29, 1997, and in effect in Jan.1 1998. • 《Rules for Public on board in Shenzhen Securities Exchange》 runs in Jan.1 1998. 《Rules for Investment Fund Public on board in Shenzhen Securities Exchange》 was on effect in Mar.17. • 《Securities Law of P.R.C 》went into effect in July.1st, 1999.

Status of our capital market • Our capital market were ready to open B Share market to domestic investors in Feb.23rd, 2001. • 《QFII Qualified Foreign Institution Investors of Shenzhen Stock Exchange》was published in Dec.2nd, 2002 • 《Special Regulations for Transactions of small and medium companies board》,《Special Regulation for listed small-and-medium scaled companies 》and 《Listing Agreement for small-and-medium scaled companies 》were declared in May.19, 2004. • 《Option certificate of stock temporary administration 》was public in July.17,2005. • 《Company Law of P.R.C. (revised edition)》and《 Securities Law of P.R.C. (revised edition 》went into effect respectively in Jan.1st, 2006.

Status of our capital market • A great changes have taken place in our capital market and to the end of 2005, the amount of companies listed in Shanghai and Shenzhen has reached to 1324 and total market value is 4470 billion. Meanwhile, conflict appears focused on small and medium companies. After the issuance of stocks, investors make transactions only in two national stock exchange which offer services mainly for large scale companies .Over 95% companies listed in Shanghai and Shenzhen Stock exchange ,their total stock price is more than 0.4 billion. China Securities Regulatory Commission allowed establishment of small and medium board besides main board in Shenzhen Stock Exchange after in May.17, 2004. With the development of this special board, domestic capital market will supply further service especially to small & medium scaled companies.

Intention of the multi-level capital market • multi-level capital market means layered market structure according to diversified market capital demand. It includes: • ① main board: also called securities exchange, often in a open, well-organized market for dealer’s bid. Mainly for large companies to finance through capital market. • ② second board: also called innovative board, mainly for small and medium companies and Hi-tech enterprises which lies in initial industrialized stage to finance. This market often offers such service as assess of assets, transaction of stock, etc. • ③ OTC market: outside the stock exchange, mainly for small and medium companies and which lies in initial industrialized stage to finance. This market often offers such service as assess of assets, transaction of stock, etc.

Hierarchy of enterprise define the hierarchy of capital market • It is the common sense that the small & medium scaled companies need multi-level capital market. A solution is establish a OTC market outside the exchange or create second board independent from main board through lower the list standard. • It is discussed that multi-level capital market in the U.S. has achieved success and we could copy the operation. But the fact is we can’t. • The basic mode for securities transaction is information asymmetry. The larger the stock market, the severer the information asymmetry. In order to reduce the transaction cost, we should classify securities according to the level of risks. As a result, different risk-preference investors can choose different risk stocks, this can solve the Moral Hazard and converse choice based on the theory of information asymmetry

Typical modes of second board in global capital market • Three typical modes: • ① parallel mode: create s single second board, as the supplementary portion of main board, both of them have the same management organization and dealing system, even the same regulatory standard and operating parallel, the only difference is on board standard. • ② improved mode: create a independent board which has a low standard. There is no more regulation for listed company besides complete accounting system and law consultant guarantee. The second board is improved from main board. • ③ independent mode: the second board itself has a independent transaction system and a single regulation system and quotation system. Its low criteria offer convenience for emerging hi-tech companies.

The definition of small & medium board • Small & medium board means the total floating stock less than 50 million, mainly include fast-growing small and medium scaled enterprise, which are gathered to public in Shenzhen stock exchange as a part of main board in Shenzhen stock exchange and need to be regulated especially, with present list standard and issuance audit rules unchanged.

Qualifications on small and medium board • small & medium board can help to develop direct finance especially for growing small and medium scaled companies and innovative enterprises .Two types are allowed: • The first one is growing small & medium scaled companies. To specifically, the companies have a great deal of un-developed resources and potential value. In brief, it means this kind of small & medium scaled company that has the ability to exploit potential resources, trend to increase and has a perfect future in the long run. It is fast-growing, energetic, flexibility and stability. • The second one is innovative enterprises, which lies in the innovation period in life cycle. It often mainly include Hi-tech or emerging companies and has a short history, unsteady market, uncertainty profit and often greater risks.

The definition of second board • The second board refers to a new market that helps to finance especially for fast-growing enterprises, high-tech industries and emerging company compared with main board. Listing qualification and functions are the same between small & medium scaled board and second board.

The differences between the small & medium-scaled enterprise board and GEM (l) The entry threshold of the small and medium-sized enterprises board is relatively high. The listing condition, approach the existing main board market, is comparatively strict. While the entry threshold on GEM is relatively low, the listing condition is comparatively loose. (2) Operating the small and medium-sized enterprises board adopts non- independent subsidiary market mode, which is also called one exchange parallel two boards, i.e. the small and medium-sized enterprises board affiliates Shen Zhen Stock Exchange. As an addition to Shenzhen Stock Exchange, the small and medium-sized enterprises board operates together with Shen Zhen Stock Exchange, and has common organization administrative system and trade system, and even adopts the same supervision standard with Shen Zhen Stock Exchange. The difference is only in listed standard. Such as Singaporean stock exchange Second Board, second board market of Kuala Lumpur and Thai stock exchange and Hong Kong GEM and so on. And GEM in china will adopt the independent operation mode, that is, respectively, Shanghai Stock Exchange of GEM and main board market operates independently. They have independent organization administrative systems and trade system, and adopt different listing standards and supervision standard, Nasdaq of U.S.A., OTC Exchange of Japan, ROSE of Taiwan, China and “new market” of France, they are like that.(3) the small and medium-sized enterprises board should be prior to GEM. In other words, the small and medium-sized enterprises board is embryonic forms of the future GEM.

Why stock market of China is a market of a single level, and why GEM should be carried out gradually? • the Chinese capital market is a new developing market, the market mechanism of which is yet imperfect, and the regulation system of which is not complete yet. There are also many problems on structure. We’ll meet the following questions • Firstly, the credit foundation of the market relies on the government, the mechanism of listing and delisting of the listed company is immature. • Secondly, the market lacks steady institutional investors, most people engage in speculation. • Thirdly, the supervision is relatively scarce. Especially, to small and medium-sized enterprises, we have still lacked the effective supervision mechanism. • In the 1990s, diversified forms of OTC markets appeared in China, which produced many problems because of lacking primary conditions. In 2000, Shenzhen Stock Exchange started the preparatory work of the market for the second board. We can't deny that many enterprises among them to launch management in a down-to-earth manner, but there are some enterprises set up for Arbitrage. 6 years passed, enterprises for arbitrage have been already inexistent.

the necessity of constructing the multi-level capital market in China • 1. Help to meet the requirements numerously for both sides of supply and demand on the capital market • 2. Help to offer and optimize the access mechanism and delisting mechanism, and to improve the quality of the listed company • 3. Help to prevent and avoid financial risks in China.

Help to meet the requirements numerously for both sides of supply and demand on the capital market • As to the supplier of funds, because of the different risk-preference , investors have different levels. Investors would like to invest in the risky stock with a high repayment; Risk neutral will choose to buy moderate risk stock, whose benefit is moderate too; people who evade risk may buy the national debt. However, there is only a main board market of the single level in China, from the system, it can’t offer the different risk-partiality investors abundant kinds of Investment varieties and different trade places.

Advantageous to satisfies the capital market fund supply and demand both sides secondary • From the demand side of the capital, at the different stages of development there are different sizes, different risk profile of the equity financing needs of different enterprises. For large-scale, robust type, strength and the mature company, because of its relatively long history of development, stability, performance, operating sound,it is likely to attract a large number of investors to buy the stock; But for small and medium-sized enterprises, particularly small and medium enterprises at the start-up stage, due to its small size, and its products are not mature enough, and great risk, so through corporate financing is unrealistic. It is affected by many factors. In the dominant ideology of the state-owned enterprises.the market serving for large enterprises will exclude a large number of SMEs.

Improve the mechanism of listing and delisting, enhances the company's quality in stock market • From the non-securities market to the securities market, from the OTC market to the GEM market, the main board market, the administration have gradually strict standards, the quality of enterprises are also stepped up, which actually provides a market screening mechanism. On one hand, the next level of enterprise cultivated for sale on the market will have excellent enterprises coming to the fore. So as people on the primary market transactions; On the other hand, for a long time poor management, that do not conform to a certain level of standards, the listed enterprises through the mechanism of withdrawal will draw back to the next level in market transactions. This forms a mechanism of survival of the fittest, which will help ensure the quality of listed companies

Assisting to avoid financial risk • Direct financing helps spread the risk, we will be able to effectively avoid risks focusing to the financial system, thereby reducing financial systemic risk. From abroad experience, mainly in the financial system of indirect financing, serious problems occur in the event of an economic entity, then will lead to a large number of bank bad debts, the fragility of the financial system often drags the sluggish economic situation a long time. At present, China's financing structure is still mainly relying on indirect financing, direct financing ratio is still relatively low. It is showed from some Information, China's share of equity financing in the total amount of capital reduced from 7.5% in 2001 to 1.6% in the first half year of 2003. Meanwhile, the share of bank loans rised from 75.4% to 89.5%.Therefore, a multi-layer capital market improve the quality of listed companies to meet the diversified investment demand,attract funds into the capital market and expand direct financing amount, thereby reducing financial risks. With the expansion of the scale of multi-layer capital market system and improving the proportion of direct financing, it will gradually form a sub-markets where have significant differences in the degree of risk, the main risk diversification. That is conducive to the stability of financial markets, and will decentralized and defuse financial risks.

comparison of structural characteristic of Chinese and foreign multi-level capital market system • The structural characteristic of American capital market system • The structural characteristic of Japanese capital market system • The structural characteristic of British capital market system • Structural characteristic of Chinese capital market system

The unique feature of US capital market systems • US capital market system ,which scales the biggest and has the most complex and most reasonable system, mainly includes three levels: ① Motherboard market. The motherboard market of US stock market is a nationwide negotiable securities transaction market which is centered by the New York negotiable securities transaction. This market has very strict standards on listed company, the main performance goes on that the market deal with the nationwide listed company's stock and bond . The enterprise goes on the market in this market generally is also well-know, and its company's maturation is good, as well as has the good achievement record and long history and better repayment. Looked from investor's point that, the investor in this market is always the risk dodges or the risk neutral.

The unique feature of US capital market systems • ② The second boards market which takes NASDAQ as the core market.The NASDAQ market takes different standards on listed companies in contrast to the New York stock market. It mainly pays more attention to the company′s growth and long-term profit . The companies in NASDAQ generally have the characteristics, eg. high tech content, high risk, high repayment, and small scale. Although the history of NASDAQ is not long , but its development velocity is very high . According to the standard of trade volume, it has become the second biggest transaction market which is just inferior to the New York stock exchange market .But from the view of the quantities of listed companies and trade volume, market performance, fluid ratio, NASDAQ has already surpassed the New York stock exchange market.

The unique feature of US capital market systems • ③The nationwide market, regional market, and outside market : The US stock market also is the nationwide exchange market, but the listed companies in this market are less famous than those in New York stock exchange market .The companies which has license in US stock market are allowed to be given the New York stock exchange market’s license when these companies grows to certain extent .There are 11 regional negotiable securities which spread to many places nationwide. They mainly distributes in big cities which are the national industry and commerce and the financial center. They become the regional enterprises’ transaction field, and it may be called the US third market (OTC).

The structural characteristic of Japanese capital market system • The exchange of Japan is also divided into three levels: Nationwide trade center, regional securities trade center and over-the-counter market. ①Main board market. Tokyo Stock Exchange is the main board market of the Japanese security market, having the properties of the national central market, the ones that are listed here are all famous big companies; ②Second board market. Another seven exchanges such as Osaka, Nagoya form the trade center of the regional securities, mainly trading those cards that can't satisfy the requirements to list on Tokyo Stock Exchange, these seven regional markets form the second board market of Japan. ③Over-the-counter market. Including shop head security market and shop head stock market, the company trading here has small scale, but can rise quickly, among them the bond trade market on the market of shop head has taken the majority of Japan's securities trading

The structural characteristic of British capital market system • （1）Main board market. London Stock Exchange is a nationwide centralized market of Britain, it has a history of more than 200 years and is a main channel which absorbs the European fund; • （2）Nationwide second board market AIM (Alternative Investment Market). Different from U.S.A., second board market AIM of Britain is sponsored by exchange of London, it is a part of the stock exchange of London, belonging to the formal market. It runs relatively independent, offering a nationwide market to Britain and overseas high growth company that is newly established; • （3）Nationwide three boards of market OFEX (Of Exchange). It is established by JP Jenkins Company undertaken to do trader's function of the city by securities trading of London, belonging to the unofficial market. It is mainly the market carrying on the stock financing service for medium and small-scale high development enterprises

The structural characteristic of Chinese capital market system • With the market system contrast of the foreign capital, the prominent characteristic of Chinese capital market system is that the structure of market is not complete. Chinese capital market develops following the process of the economic system reform progressively, also there are some profound problems and structural contradictions on the thinking of development, mainly as follows: • Laying stress on indirect financing, rather than the direct financing; Laying stress on the bank financing, rather than the security market melts investment; "Laying stress on the stock market, rather than the debt market, laying stress on the national debt, rather than the enterprise's debt " on the capital market. This kind of thinking of development has resulted in the structural deformity and poor efficiency of allocation and use of the whole social fund, seriously influencing the effective scattering of the market risk and the rational disposition of financial resource.

Structural characteristic of Chinese capital market system • （1）The main board market, including Shanghai Stock Exchange and Shenzhen Stock Exchange. Organizing system, listing standard, trade way and structural respect of supervision of the securities trading of Shanghai Stock Exchange and Shenzhen Stock Exchange are nearly all totally identical, mainly offer service of listing for the ripe state-run large and medium-sized enterprise. • （2）Second board market (the market for the second board on the country's stock). On June 24, 2004, the market for the second board on the country's stock of serving small and medium-sized enterprises especially new high-tech enterprise was just put out, it affiliates under Shen Zhen Stock Exchange, has basically extended the rule of the main board: except that can accept and circulate one and is listed on small and medium-sized enterprises of under 50 million shares this point differently, other listing conditions and operation rules, nearly like main board, so " threshold " listed is still very high; • （3）Third board of market (over-the-counter market). Including " handling the system of transfer of shares on one's behalf " and the local trade market of property right. Generally speaking, the kerb market of China is mainly sponsored by each government department, market orientation is indeterminate, the distribution is unreasonable, unify the rule scarcely and the structural level is single, still remain to further develop.

Prospect of constructing the multi-level capital market of our country • 1. Develop the market of exchange, resume pattern of competitive market of the exchange, realize the modes of dividing one point of the board in board on the market of exchange. • 2. Develop the second board of the market, offer convenience of financing for small and medium-sized enterprises of scientific and technological. • 3. On the normal basis, lead the market to develop the over-the-counter market acting on one's own. • 4. Set up the trade market of many kinds, encourage innovations and standardize.

Prospect of constructing the multi-level capital market of our country • 1. Develop the market of exchange, resume pattern of competitive market of the exchange, realize the modes of dividing one point of the board in board on the market of exchange. • Just as NASTAQ board dividing one point of modes of the board, exchange market of China may go on the division of the different levels on the inside too, for example Shen Zhen Stock Exchange has main boards and small and medium-sized enterprises board, but the power of this kind should autonomies had that proceed from angle of market in the exchange. Develop the market of exchange still involve several pieces of key independent power of exchange, such as the power to choose the listed company, set up delisting condition, determine the power that enterprises quit listing, and design the trade mode and power of the innovative trade variety.

The tentative plan of constructing our country multi-level capital market • To develop the starting market and provide the convenience for financing channel for mid- and small-scale enterprise rich in science and technology。 • At present neither small & medium-scaled enterprise nor the large enterprise has the difficulty of going into the stock market, complexity of the verification procedure, the limit of available capacity. They cannot satisfy the multitudinous high-tech enterprise and its the venture capital withdrawal need which in the state economy high speed growth process produces. Through the process of developing an advancement board, the key lies in the enterprise and investor's demand which is considered during condition designation of the release of stocks, the entering of the stock market ,and the withdraws of capacity. If possible, to study the capital market system which is advantageous to support independent innovation, such as the city business system, the fast way of refinancing system, the easy financing channel for mid- and small-scale enterprise rich in science and technology and so on.

Prospect of constructing the multi-level capital market of our country • 3, based on the standards, it is needed to guide the market independently to develop the transaction market outside. From the history of development of US'S outside transaction market, the place transaction market nearly all is independently develops by the market self. For example, the NASDAQ market system is formed based on more than 3,000 counters transaction in the beginning of 1970’s, using the electronic technology networking. But this more than 3,000 counters transaction points has already existed for a long time the very long time before the ASDAQ market period. the question at present is that the government has leaded or monopolized the entire market right for development, including the outside market, this caused the market demand not to be able to form the realistic market growth. Therefore, we should base on the general situation of state economy development, develop the outside market in a exploiting way. As for the three markets which has already existed and the experiment site of Zhongguan Village ,we should starts from the point of the enterprise and investor's view, speeds up the transformation of the market, which help it to become an ordinal link in the multi-level capital market .

Prospect of constructing the multi-level capital market of our country • To establish the multi- type transaction market and encourage the innovation and the standard. • We should suitably introduce and the develop the tools derived from the finances and risk-avoid tools, like property negotiable securities product, ETF, the open fund in the stock market (LOF), the power card as well as others. This September just licensed the tenable Shanghai finance futures exchange was one kind of choice. Regarding the development of enterprise’s debt market, there should be more use of the market developing pattern.we should change examination and approval power primarily giving up eating for fear of choking -like development pattern, send the creditor's rights to return for the enterprise, simultaneously strengthen the credit system construction, further strengthen market supervising and managing, maintain the market order.

The development of small and medium-sized businesses • From a global perspective, regardless of in developed countries or in developing countries, small and medium-sized businesses play an important roal. • Judging from Chinese conditions, the statistics shows that by the end of 2004, China has over 3,600,000 registered SMEs and 28,000,000 individual businesses, which account for 99.6% of the total number of enterprises in whole country. The ultimate value of goods and services which SMEs created accounted for 58.5% of gross domestic product, and it’s industrial output accounts 74.7%, exports accounting for 68.3%, imports accounted for 69%, tax paid account for 48.2%. Meanwhile, SMEs provide more than 75% of the urban employment opportunities.

The development of small and medium-sized businesses • This shows that small and medium-sized enterprises have already become the important foundation of economic development, market prosperity and employment increase in China. And it has become the driving force of change in the economic system depends on its flexible operating mechanism and its ability to adapt flexibly. It has already been the group of Chinese economic development which must be paid more attention to. • However, there are many problems which SMEs must be confronted with. One of the most prominent problem is the shortage of funds. The development of SMEs has been plaguing by its financing difficulties and this is a relatively common problem faced by all countries. In developed countries, informal equity capital markets, risk investment system, a second board market, which help SMEs make up the financing gap to a large extent.

The development of small and medium-sized businesses • While at present China is in the process of changing economic and financial system. Faultiness of Micro-operations basis in operation of the market economic system caused friction in the system made the problem of financing SMEs particularly serious. Chinese SME financing has phenomena of high cost of financing, financing relatively narrow channels, means singleness, lack of credit financing. and lack of government support. SME financing has already become a the “bottleneck” of stopping SMEs rapid and healthy development in China. Discuss how to resolve the plight of SME’s financing and build financing system which suitable to China's small and medium-sized enterprises, which could help promot the development of SMEs, thus push forward the healthy development of Chinese economy.

The classifications of SMEs • February 19, 2003, State Economic and Trade Commission, State Development Planning Commission, Ministry of Finance and National Bureau of Statistics jointly promulgated the "Interim Regulations on Standards for SMEs". The criterion is constituted according to the number of workers , total assets, and sales targets in small and medium-sized enterprises, and combining features of various trades. “Provisional Regulations” suitable to industry, construction, transport and postal industry, the wholesale and retail, and restaurant business.Among them, Industry, including mining, manufacturing, electricity, gas and water production and supply industry. SMEs of other industries witch are not include in the standard constitute additionally. According to the "Interim Provisions", the criteria for the classification of small and medium-sized enterprises as following: • (1)Industry, small and medium enterprises must meet the following conditions : the number of workers less than 2000, or sales below 300 million yuan, or the total assets less than 400 million yuan. Among them, medium-sized enterprises must at the same time meet the condition that 300 or above 300 workers, sales achieve 30 million yuan or above, and total assets is 40 million yuan or above; the other for small business.

The classifications of SMEs • (2)Architecture trade, small and medium enterprises must meet the following conditions : the number of workers less than 3,000, or sales below 300 million yuan, or the total assets less than 400 million yuan.Among them, medium-sized companies have to satisfy the condition at the same time that 600 or above 600 workers, sales achieve 30 million yuan or above, and total assets is 40 million yuan or above; the other for small business. • (3)Wholesale and retail trades, small and medium-sized enterprises must comply with the following conditions : the number of workers less than 500; or sales below 150 million yuan; Among them, medium-sized companies have to satisfy the condition at the same time that 100 or avove 100 workers, or sales achieve 10 million yuan or above; the other for small business. SMEs in the wholesale trade industry must comply with the following conditions : less than 200 employees, or sales is 300 million yuan below. Among them, medium-sized companies have to satisfy the contion at the same time that 100 or more than 100 workers, sales is 30 million yuan or more than 30 million yuan; the other for small business.

The classifications of SMEs • (4)Transport and postal trade, small and medium-sized enterprises of the transportation trade must meet the following conditions : with less than 30 employees, sales is less than 300 million yuan. Among them, medium-sized enterprises need to meet the condition at the same time that more than 500 workers, sales is more than 30 million yuan;the other for small business. Small and medium-sized enterprises of the postal service must meet the following conditions : less than 1000 workers, or sales is less than 300 million yuan. Among them, medium-sized companies have to satisfy the condition at the same time that 400 or more than 400 workers, sales is 30 million yuan or more than 30 million yuan; the other for small business. • (5) Accommodation and catering industry, small and medium enterprises must meet the following conditions : the number of workers below 800, or sales below 150 million yuan. Among them, medium-sized enterprises have to cater for 400 or above 400 workers, and sales achieves 30 million yuan or above;the other for small business.

Position and functions of small and medium scaled companies in China • (1)lay the solid foundation of socialistic market-oriented economy • (2) fasten economic development • (3) increase employment • (4) perfect the ability to avoiding risks • (5) contribute to economic reform • (6) improve the incomes of farmers

The Importance of financing tosmall and medium scaled enterprises • (1)Financing is elementary for normal companies’ operations • (2) Financing is base and precondition of invest from small and medium companies. • (3) The amount and structure influence the performance and profit of enterprises.

Characteristics of financing for small and medium companies • (1) complex of enterprise structure • (2) singleness of financing • (3) weak of credit warrant ability • (4) information asymmetry • (5) confused of management structure • (6) difficult in direct finance

Difficulties in financing of small and medium scaled companies • (1) scarce of resource for direct finance • (2) scarce of internal capital • (3) difficulty in obtaining loan from the bank • (4) severe structural conflict • (5) lack of credit guarantee system • (6) difficulty in direct finance

The probable causes for difficulties in financing • There are two main causes about the situation from internal and external. Because of the national policies, the loans from four main national banks basically were given large enterprises or important lines. As a result, the loans for small and medium companies are limited. In recent years, commercialized innovation of national banks also restrict amount of loan to small and medium companies. Besides, some small companies gave false financial information together with a low credit level made the conditions worse.

External causes for difficulties in financing • (1)scarce of policies support and faulty of correlative laws and regulations • (2) scarce of credit warrant system There are two situations in domestic guarantee system, rare of venture funds from credit agencies and faulty in risks compensation

External causes for difficulties in financing • (3) loan mortagage Loan mortagage determines feasibility of bank loan. But small companies can get limited loan through loan mortagage because high mortagage cost. • (4)operation in banking system Banks provide loans mainly to large state owned enterprises when considering safe-guard of the loan. The banks of county only maintain recommendation of loan and without the loaning power.

Establish financing policies for small and medium enterprises • (1)promote effective policies assisting system • (2) improve the relationship between bank and enterprise • (3) develop small and medium enterprises • (4) Improve domestic venture invest market • (5) Complete credit warrant system for small and medium scaled companies • (6) promote internal assistant among small and medium scaled companies

Improve domestic venture invest market • (1) venture invest can help to develop small and medium scaled companies • (2) offer more government policies support • (3) establish venture invest assistant agency • (4)improve bond financing market • (5)develop small and medium board

Complete credit warrant system for small and medium scaled companies • (1) regulate credit warrant system for small and medium scaled companies • (2) regulate the credit agencies • (3) establish national credit warrant company for small and medium scaled companies • (4)complete laws and regulations of credit warrant for small and medium scaled companies • (5) improve credit level of small and medium scaled companies • (6)emphrase credit warrant reinsurance policy • (7) consolidate credit management education, establish society credit culture

A. Professor Chunxu Liu