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Web financing gives hope to cash-starved small firms

Published on Friday, 26 Sep 2014
Photo: Martin Chan/SCMP

Alibaba platform has so far approved 14 billion yuan in loans to help break credit bottleneck

Internet financing portals such as Alibaba could provide Beijing with a stealthy means to create a brand new stream of credit to support the flagging mainland economy by getting capital to companies currently cut off from official bank lending channels. 

E-commerce giant Alibaba, which wrapped up its record US$25 billion initial public offering in New York on Friday, said this week it expects to create a marketplace to provide about one trillion yuan (HK$1.3 trillion) worth of loans over the next two to three years for cash-hungry small and medium-sized enterprises (SMEs) through a new platform called Zhao Cai Bao. 

This would equate to a massive monetary stimulus that the People's Bank of China would otherwise be at pains to provide. Total social financing extended across the mainland last month was close to one trillion yuan.

"Funding bottlenecks have become a rather serious problem in the economy," said Chinese Academy of Social Sciences professor Yu Yongding. 

He cited official data as saying that small and micro-sized firms faced annualised lending rates of about 25 per cent in the second quarter of this year, sharply higher than average mainland borrowing costs of about 7 per cent and the corporate profit ratio of 6 to 7 per cent.

"SMEs have been hurt by low profitability and high financing costs, which would push up corporate leverage ratios, forming a vicious cycle," Yu said. 

Beijing has refrained from making broad-based interest rate cuts to ease funding costs, even though economic growth risks missing its target of about 7.5 per cent this year. It has, instead, preferred to inject liquidity into selected sectors. 

Mainland banks have long favoured lending to state-owned firms with implicit government backing, with small firms lacking sound collateral forced to borrow expensively through the underground banking system.

About 17 per cent of loans from listed mainland banks go to SMEs, said Goldman Sachs.

Yuan Leiming, head of Zhao Cai Bao, said the platform, launched in April had so far bridged transactions totalling 14.3 billion yuan, with an average loan size of 70,000 yuan.

Zhao Cai Bao lists about 11,000 wealth management products, with expected returns for six to 12 month products of at least 5.5 per cent.

Such an interest rate was "attractive and it certainly gives me a lot of confidence in expanding my businesses", said Qian Kang, a Zhejiang entrepreneur who owns a car parts factory. 

Yu cautioned that potential risks in new internet finance products remained unclear and might need further assessment. 

Borrowers were allowed to tap at most 200 investors as long as the loan was guaranteed by a financial institution.

Victoria Ruan in Beijing, Don Weinland and Daniel Ren in Shanghai

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