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Huang Yiping: Helping SMEs out of Cash Flow Quagmire

Mar 26-2022   



In the recent China Economic Observer (CEO), a forum by the NSD, Prof. Huang Yiping called for actions to mitigate the heightened cash flow risks of small and medium-sized enterprises. The event, in its 60th edition, centered around the messages from the Two Sessions and the prospect of the Chinese economy. Prof. Huang is Associate Dean of the NSD and Director of Institute of Digital Finance at PKU.

 

China’s SMEs were confronted with three new issues, cautioned Prof. Huang. First of all, though their sharply rising leverage rate bore witness to the tangible results of government support over the last few years, it also pointed to higher cash flow pressure in the future, which might be further exacerbated if the economy were not to perform well.

 

The second alarm-sounding challenge concerned the relatively high financing costs that private firms had to put up with. According to Prof. Huang’s calculations, in terms of nominal loan rate, private companies paid only 1.6% more than SOEs, but in real terms (once CPI, LPR and PPI as well as the positions of private firms and SOEs in value chains were factored in), the rate discrepancy between the two shot up to 9%.

 

Private firms also had to cope with an evidently longer period for recouping their receivables, from the pre-pandemic average of 30 days to 90 days during the pandemic, according to some research. By the end of 2020, total account receivables in the country amounted to 14.7 trillion yuan, almost on a par with the 15.7 trillion yuan of aggregate bank loans to SMEs in that year. In other words, the loans that the government encouraged the banks to give to SMEs were nearly fully kept in the hands of large companies free of charge for three months, said Prof. Huang.

 

He believed that some measures laid out in the government work report might help alleviate the cash flow risks faced by the SMEs, and he hoped that more methods could be worked out to further reduce the financing costs of SMEs and shorten their receivable cycle. He also advocated handing out cash subsidy to SMEs to tide them over 2022.

 

Huang Yiping: Helping SMEs out of Cash Flow Quagmire

Mar 26-2022   



In the recent China Economic Observer (CEO), a forum by the NSD, Prof. Huang Yiping called for actions to mitigate the heightened cash flow risks of small and medium-sized enterprises. The event, in its 60th edition, centered around the messages from the Two Sessions and the prospect of the Chinese economy. Prof. Huang is Associate Dean of the NSD and Director of Institute of Digital Finance at PKU.

 

China’s SMEs were confronted with three new issues, cautioned Prof. Huang. First of all, though their sharply rising leverage rate bore witness to the tangible results of government support over the last few years, it also pointed to higher cash flow pressure in the future, which might be further exacerbated if the economy were not to perform well.

 

The second alarm-sounding challenge concerned the relatively high financing costs that private firms had to put up with. According to Prof. Huang’s calculations, in terms of nominal loan rate, private companies paid only 1.6% more than SOEs, but in real terms (once CPI, LPR and PPI as well as the positions of private firms and SOEs in value chains were factored in), the rate discrepancy between the two shot up to 9%.

 

Private firms also had to cope with an evidently longer period for recouping their receivables, from the pre-pandemic average of 30 days to 90 days during the pandemic, according to some research. By the end of 2020, total account receivables in the country amounted to 14.7 trillion yuan, almost on a par with the 15.7 trillion yuan of aggregate bank loans to SMEs in that year. In other words, the loans that the government encouraged the banks to give to SMEs were nearly fully kept in the hands of large companies free of charge for three months, said Prof. Huang.

 

He believed that some measures laid out in the government work report might help alleviate the cash flow risks faced by the SMEs, and he hoped that more methods could be worked out to further reduce the financing costs of SMEs and shorten their receivable cycle. He also advocated handing out cash subsidy to SMEs to tide them over 2022.