Title: A Study of the Finance of Upgrading Labor Intensive Manufacturing SMEs:A Perspective of Optimal Financing Structure Theory
Abstract: China joins the global industrial division of labor is largely based on its cheap labor supply,which creates million of labor-intensive small and medium sized enterprises.Transformation and upgrade of traditional industry is an indispensible to China' s economic development strategy shift.Among others,the development of laborintensive small and medium sized enterprises(SMEs) is vital for the evolution of traditional industry.This paper employs the Optimal Finance Structure theory to explore the finance issue of labor-intensive SMEs.We argue that China' s SMEs industrial distribution is the natural consequence of China' s three decades of economic development strategy of following the factor endowment structure.Under the traditional economic development strategy,China' s financial structure has been operating to be favorable to big enterprises in order to mobilize financial resource to pursuit of the national catch-up strategy.Big banks are incumbent dominant suppliers of this financial system.Besides the common problems with SMEs' financing,such as transaction cost and asymmetric information,the financial problem of China' s SMEs is the result of the distorted financial structure.It' s necessary to optimize China' s financial status of SMEs.However,China' s successful economic growth is reshaping China' s factor endowment structure.This would be figured out by China' s unsustainable unlimited surplus labor supply and structural overall labor cost increase and abundant capital searching for new investment opportunity.China is shifting its economic development strategy by the transformation and upgrade of industrial structure.The risks of SMEs are changing during their transformation and upgrade.This paper contributes to our understanding on China' s SMEs' financial problems from the demand side,rather than the conventional perspective of supply side.At this new stage of development,the financing problem of SMEs is intertwined with both old and new ones.The old problem with China' s SMEs' financing could be featured as the follow.The regular financing problem of SMEs has not been solved,while the specific problems with industrial transformation and upgrade arise.We suggest that the SMEs' financial demand for the transformation and upgrade is the ' transformation-oriented financing',in order to make distinction between the regular operation-oriented financing.It is necessary to analyze the new feature of SMEs' financial demands at the first hand,before we rethink about the financial supply.We nominate that SMEs' ' transformation-oriented financing' is featured as longterm,big in size,stable and comprehensive.These new features are prominendy from the regular financial demand of SMEs.From the perspective of optimal financial structure,it requires a new type of financial system that is capable to meet SMEs' dual demand for long-term upgrade.This paper carried out questionnaires,field interviews and case study to collect facts on China' s SMEs' financial status and empirically test our hypotheses.The major findings are the follow.Firstly,the big four state-owned commercial banks are still the main financial source for SMEs,although indirect financing is inefficient for SMEs' transformation and upgrade.Local small financial agents are relatively weak in serving the SMEs.Secondly,The major impediment for SMEs' financing is not the financial cost,but the transaction cost to get funds,such as the examination and approve process of the banks is often too long,which is the most problematic factor for SMEs to get banking financing.Thirdly,the difficulty of SMEs' financing is deteriorated by the week public service system for SMEs that could be offer necessary service to boost SMEs' transformation and upgrade and leaves the SMEs the burden the full information cost and a great variety of risks.In sum,the evidence demonstrates that China' s SMEs demand for industrial transformation and upgrade is far from satisfaction at present.We need collective efforts from both the financial market side and policy side.In order to alleviate SMEs' difficulty in finance,we suggest a dual strategy.On the one hand,strengthening finance policy to support SMEs,which includes improving personal and enterprise credit system,widening direct financing channels for SMEs,capacity building of small and medium sized financial agents,promoting financial product innovation for SMEs of commercial banks and other commercial financial services.On the other hand,it is helpful to building up efficient public service system for SMEs and strengthening the service network,in order to reduce SMEs' information cost and risks in transformation and upgrading.
Publication Year: 2014
Publication Date: 2014-01-01
Language: en
Type: article
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