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Premier Li: enterprises fear non-transparent market, unstable expectations

Chen Mengwei
Updated: Jul 23,2014 5:26 PM

Li Keqiang said the key to upgrading the Chinese economy is managing the relationship between government and market, simplifying administrative approval procedures, delegating power to lower levels - and balancing regulations and supervision.

Li made the comments at an executive meeting of the State Council on July 23 concerning measures to alleviate the high cost of corporate finance, reviewing the “Provisional Regulations on Enterprise Information Publicity (Draft)”, and promoting fair competition in the market.

If financing costs remain high, the “market engine” we created may lose momentum.

Li Keqiang required relevant departments to implement measures to lower the high costs of corporate finance - a major issue for enterprises, especially small and micro businesses and new start-ups.

“Many companies react very strongly, and very specifically, to high financing costs,” Li said. “Through streamlining the administrative procedures and delegating powers to lower levels, and reforming commercial registration system, we’re allowing passionate entrepreneurs to enter the market. If it is still difficult to get approvals in some government departments, and corporate financing costs remain high, the entrepreneurs’ enthusiasm will be badly shaken, while the ‘market engine’ we created may lose momentum.”

Li also said that, as the volume of monetary credit is at a relatively high level, the authorities should focus on structural adjustment to optimize the flow of credit - which should be directed to the real economy, like small and micro enterprises and agriculture, by implementing various measures.

Several “tough measures” should be implemented, so as to lower financing costs by the end of the year.

Most of the premier’s research at local levels this year has focused on how finance supports the real economy. He said at the meeting on July 23 that the high cost of financing has created various problems - and some of these problems seem to be more widespread.

“Some local enterprises said that the financing process is too long and costs too much, which adds up to the financing toll. Some other companies said they felt they were very lucky to get an annual interest rate of 12 percent from small loan companies, because it is relatively expensive to receive funding from banks,” Li said. “With such a high cost of financing, how can it be easy for market players to establish a business? In the long term, neither small and micro enterprises, nor the real economy can bear the burden.”

Li also said that lowering the high cost of corporate finance is essential for improving the business environment. And, to some extent, it also concerns the government’s “social responsibility.” He asked relevant departments to work together to tackle several key problems, and third-party evaluators should regularly check their progress. “Several tough measures should be implemented so as to lower the financing costs by the end of the year,” Li said.

Citing the novel “The Moneychangers”, Li said big deals and also small deals are all worthwhile.

Li said the authorities should deepen financial reforms to alleviate the current high financing costs - including accelerating the development of small and medium financial institutions, promoting market competition and increasing financial supply. “This is a signal to the market to increase financing channels, and to allow various financial institutions to compete more fairly in the marketplace,” he said.

Citing Arthur Hailey’s “The Moneychangers”, he said: “A commercial bank should handle big deals and also small deals, so as to remain invincible. Some banks only do big business. They refuse to offer a little sunshine and rain to growing small and medium enterprises. But they constantly make offers to big companies, which obviously do not need ‘umbrellas.’ Such a mode of operation can never go a long way”.

Li added that, regarding social responsibility and business philosophy, commercial banks have to find a way to provide services to small and micro enterprises, especially to newly established small and micro science and technology ventures. “They are the ‘gold mine’ to support China’s future economic development,” he said.

From the past mode of “relying on the administrative approval procedures to manage enterprises” to the future mode of “greater reliance on establishing a transparent and credible market order to standardize enterprises”.

The participants at the meeting discussed the “Provisional Regulations on Enterprise Information Publicity (Draft),” and Li said that the regulations involve supporting measures for the reform of the administrative approval system and a significant part of the effort to balance the regulations and supervisions. The regulations are aimed at preventing chaos after powers are delegated to lower levels, and are also expected to create a healthy market environment, which is an inherent requirement of credible and law-abiding enterprises.

Coincidentally, at an economic forum in the previous week, entrepreneurs from different industries said to the premier: “We don’t want subsidies, we just want fairness,” and “as long as there is a standardized and fair competition environment, companies can do well on their own.”

Li mentioned this discussion during the executive meeting, saying: “If there is no harsher punishment for fraud, counterfeiting and infringement of intellectual property rights, good enterprises won’t grow, and we will see the phenomenon of ‘bad money driving out good money’.”

He said that reform of the administrative approval system and balancing regulations and supervisions is the first move and a key solution of this government. The most crucial part of the reform is to handle the relationship between the government and the market. The authorities should make it easier for enterprises to enter the market and reduce the administrative approval procedures, so that more companies can compete with each other. However, all the companies that enter the market should play by the rules.

“The market should not be ruled by the law of the jungle. Companies can’t just break the rules and backstab each other with impunity. We still need the government as a referee,” Li said. “But, on the other hand, the government should blow the whistle justly, not unfairly. The government should clarify the supervising rules and implement innovated measures of supervision. The concept of survival of the fittest should be allowed to let the market compete fairly and develop healthily.”

Li said that accelerating the implementation of the enterprise information publicity system will allow the government to change from the past mode of “relying on the administrative approval procedures to manage enterprises,” to the future mode of “greater reliance on establishing a transparent and credible market order to standardize enterprises.”

We cannot let the old market policies tie the market’s hands in legitimate competition.

Li also referred to the hot topic of “big data”, saying:”When we build the enterprise credit information publicity system and the national social credit information platform, the ‘big data’ mindset should be used.”

He asked relevant departments to step up efforts in research, so that information platform convergence and data sharing of various departments can be realized as soon as possible. An information platform of real national network will lay the foundation for fair market competition, he said.

“China is so big, and it’s in the process of accelerating modernization. Many things are changing fast. We cannot let the old market policies tie the market’s hands in legitimate competition. The policies should be adapted to the actual situation, and they should be constantly revised and improved,” Li said.

“Enterprises fear a non-transparent market and unstable expectations,” he added. “To create a market of fair competition, it is necessary to not only publish the information of enterprises in the market, but also to make the government’s list of powers public.”