China invests $2.5 billion in small business

As growth slides, the Chinese government looks to boost its struggling private sector with funding, tax breaks and credit for small business.

February 1, 2012   by The Canadian Press

BEIJING—The Chinese government has unveiled a $2.5-billion fund for small businesses, and new tax breaks and lending for entrepreneurs in an effort to help its struggling private sector.

Entrepreneurs create most of China’s new jobs and wealth, but thousands have been driven out of business. The survivors have slashed payrolls, raising concern among China’s communist leaders about possible unrest.

While the government provided no details to the extent of the new funding, it also promised a cut in taxes and fees, saying small businesses will be guaranteed a portion of government purchases of goods and services.

Beijing ordered the state-owned banking industry to lend freely to help China’s economy rebound from the 2008 global crisis. But it clamped down on credit to prevent overheating after annual economic growth soared above 10 per cent in 2010.

Economic growth fell to a two and a half year low of 8.9 per cent in the fourth quarter of 2011.

The credit clampdown battered entrepreneurs as banks channeled limited lending to politically favored government companies. Entrepreneurs turned to high-interest underground lenders. Thousands went bankrupt, leaving employees and suppliers unpaid.

The government responded in October by ordering banks to step up lending to small businesses, but it is unclear whether credit has increased.

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