Shanghai Establishes SME Funds

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Sept. 8 – The Shanghai Municipal Government, concerned by slow growth rates and rising cases of bankruptcies, has become the first regional government to establish funds to assist local businesses. Three funds have been set up, each of RMB1 billion (US$156.68 million) to assist small-medium local businesses obtain financing.

Many local businesses have been hit by rising costs and monetary tightening at bank levels. The first fund will be used to invest in loan guarantee companies in order to boost their capital base and permit them to widen funding for small businesses. The second will be used to cover any losses incurred by banks if loans made by them to SMEs turn bad, while the third fund will provide seed capital and invest in startups.

Shanghai’s economy grew at just 8.4 percent last year, the slowest in China, while the city’s fixed asset investment dropped for the first time since 1999, and is set to decline further over the next three year period. Many businesses in China have been hit by a combination of rising costs in labor, raw materials and inflation, while at the same time bank lending has been curtailed.

The central government has yet to announce any significant policies to assist. The three Shanghai funds will be managed by the city government investment arm, under the Shanghai Finance Bureau.

Dezan Shira & Associates maintains an office in Shanghai. For assistance with matters of legal establishment, tax and business advisory issues please contact the firm at shanghai@dezshira.com.

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