III. Commercial banks actively engaged in finding a solution to fnancing problems for small and medium enterprises As an important component of the national economy, owners. Credits between 1 and 3 million yuan are small and medium-sized enterprises constitute a vital eligible for priority approval. The new management economic group and play an increasingly important model has enhanced Minsheng Banks profitability, and ole in areas such as promoting Chinas economic both its net interest margin and its net interest spread prosperity, increasing employment, driving innovation are top-ranked among 16 leading banks. and accelerating the birth of new industries. More than 99 percent of enterprises throughout the country are State-owned large banks have also started to focus on small and medium enterprises. Their contribution to GDP expansion of small and medium enterprise business, and is over 60 percent and their contribution to tax revenue in particular, on the small and micro enterprise segment. exceeds 50 percent. These same institutions have created China Construction Bank has specifically formulated a about 80 percent of employment positions in urban credit check and extension process for small and mic areas.5 Financing difficulties, however, are holding back enterprises with annual sales volumes below 5 million small and medium enterprises. Currently, 70 percent yuan, and has adopted a priority guarantee for good of these institutions are facing financing difficulties. 6 quality customers. Recently, some foreign banks have The situation of funding shortfalls for all but the largest also expanded their efforts to extend credit to nterprises in China is related to both tightened liquidity and medium enterprises. Standard Chartered Bank is and expanded demand for capital to support rapid also looking at loans to small and medium enterprise businesses as a strategic business niche, and will provide quick and convenient services to small enterprises with Since the end of 2010, when China implemented a nnual sales volumes below 10 million U.S. dollars. 18 prudent monetary policy, banks have been actively engaged in expanding credit to small and medium At the same time, State policies for supporting small and enterprises. Although competition for good-quality loans medium enterprises gives banks even greater confidence is high, these enterprises are attractive borrowers due or supporting these credits. Premier Wen Jiabao of the to higher returns from healthy interest rates and lower State Council of China held an executive meeting of costs of capital. Based on a deloitte study of the industry, the State Council on October 12, 2011, at which the the average interest rate premium on small and medium nine financial and taxation policies and measures for enterprise loans can be more than 20 to 30 percent, and supporting small and micro-enterprise development were the interest rate for micro-enterprise credit loans may go studied. These discussions included measures to expand by 200 per credit loan support of small and micro-enterprises with a single account credit line below 5 million yuan In the past two years, all banks have begun to develop expansion of financing channels for small and micro- small and medium enterprise business in practice. Some enterprises; fine-tuning of disparate supervisory and Statistics banks focus on this segment as a strategic core business; regulatory policies on providing financial services to 16 NETEASE Finance"Zha most large commercial banks have established small and micro-enterprises; promotion of financial department responsible for this segment. institution reform and development; elevation of the starting point of taxation for collecting value-added As of year-end 2011, all financial institution loans totaled tax and sales tax from this segment; exemption of the 54.8 trillion yuan. The balance of the small and medium stamp tax within three years for loan contracts between 17 China bank enterprise loans was 10.8 trillion yuan, and accounted financial institutions and small and micro-enterprises; for 19.6 percent of all loans. The year-end balance was and extension of the policy on deducting loss reserve year, and exceeded the average growth rate for all loans and medium enterprises until the end of 2013. 19 25.8 percent higher than efore tax for loans from financial enterprises to by 10 percentag ember 21, 2011, "Banks On October 24. 2011. the CBRC issued the Expand Small and Medium Currently, joint-stock banks have taken the lead upplementary Notice on Supporting Commercial Banks Enterprise Loan Scal developing loan business for small and micro enterprises. in Making Further Improvements to Small and Micro Sohu, December 23, 2011, Minsheng Bank has adopted a mature management enterprise Financial Services". According to the Notice model to serve this segment. Beginning in 2009, loans to small and micro-enterprises with a single of the State[Council] Minsheng Bank transferred the focus of personal loans account below 5 million yuan(inclusive)to which the Resolve Financing Difficul- from real estate loans to the"Shang DaiTong Commercial financial bonds issued by commercial banks correspond ties for small and micro- Loan"business targeted at small and micro enterprise nay be excluded from the scope of assessment wher6 III. Commercial banks actively engaged in finding a solution to financing problems for small and medium enterprises As an important component of the national economy, small and medium-sized enterprises constitute a vital economic group and play an increasingly important role in areas such as promoting China’s economic prosperity, increasing employment, driving innovation and accelerating the birth of new industries. More than 99 percent of enterprises throughout the country are small and medium enterprises. Their contribution to GDP is over 60 percent and their contribution to tax revenue exceeds 50 percent. These same institutions have created about 80 percent of employment positions in urban areas.15 Financing difficulties, however, are holding back small and medium enterprises. Currently, 70 percent of these institutions are facing financing difficulties.16 The situation of funding shortfalls for all but the largest enterprises in China is related to both tightened liquidity and expanded demand for capital to support rapid growth. Since the end of 2010, when China implemented a prudent monetary policy, banks have been actively engaged in expanding credit to small and medium enterprises. Although competition for good-quality loans is high, these enterprises are attractive borrowers due to higher returns from healthy interest rates and lower costs of capital. Based on a Deloitte study of the industry, the average interest rate premium on small and medium enterprise loans can be more than 20 to 30 percent, and the interest rate for micro-enterprise credit loans may go up by 200 percent. In the past two years, all banks have begun to develop small and medium enterprise business in practice. Some banks focus on this segment as a strategic core business; most large commercial banks have established a primary department responsible for this segment. As of year-end 2011, all financial institution loans totaled 54.8 trillion yuan. The balance of the small and medium enterprise loans was 10.8 trillion yuan, and accounted for 19.6 percent of all loans. The year-end balance was 25.8 percent higher than the same period the previous year, and exceeded the average growth rate for all loans by 10 percentage points.17 Currently, joint-stock banks have taken the lead in developing loan business for small and micro enterprises. Minsheng Bank has adopted a mature management model to serve this segment. Beginning in 2009, Minsheng Bank transferred the focus of personal loans from real estate loans to the “ShangDaiTong Commercial Loan” business targeted at small and micro enterprise owners. Credits between 1 and 3 million yuan are eligible for priority approval. The new management model has enhanced Minsheng Bank’s profitability, and both its net interest margin and its net interest spread are top-ranked among 16 leading banks. State-owned large banks have also started to focus on expansion of small and medium enterprise business, and in particular, on the small and micro enterprise segment. China Construction Bank has specifically formulated a credit check and extension process for small and micro￾enterprises with annual sales volumes below 5 million yuan, and has adopted a priority guarantee for good quality customers. Recently, some foreign banks have also expanded their efforts to extend credit to small and medium enterprises. Standard Chartered Bank is also looking at loans to small and medium enterprise businesses as a strategic business niche, and will provide quick and convenient services to small enterprises with annual sales volumes below 10 million U.S. dollars.18 At the same time, State policies for supporting small and medium enterprises gives banks even greater confidence for supporting these credits. Premier Wen Jiabao of the State Council of China held an executive meeting of the State Council on October 12, 2011, at which the nine financial and taxation policies and measures for supporting small and micro-enterprise development were studied. These discussions included measures to expand credit loan support of small and micro-enterprises with a single account credit line below 5 million yuan; expansion of financing channels for small and micro￾enterprises; fine-tuning of disparate supervisory and regulatory policies on providing financial services to small and micro-enterprises; promotion of financial institution reform and development; elevation of the starting point of taxation for collecting value-added tax and sales tax from this segment; exemption of the stamp tax within three years for loan contracts between financial institutions and small and micro-enterprises; and extension of the policy on deducting loss reserve before tax for loans from financial enterprises to small and medium enterprises until the end of 2013.19 On October 24, 2011, the CBRC issued the “Supplementary Notice on Supporting Commercial Banks in Making Further Improvements to Small and Micro￾enterprise Financial Services”. According to the Notice, “loans to small and micro-enterprises with a single account below 5 million yuan (inclusive) to which the financial bonds issued by commercial banks correspond may be excluded from the scope of assessment when 15 National Bureau of Statistics. 16 NETEASE Finance “Zhang Zhigang of Cinda Securities: 70% of Small and Medium Enterprises Find It Difficult to Get Financing”, August 31, 2011. 17 China Banking Regula￾tory Commission, “China Banking Industry Operation Report (2011)”, February 15, 2012. 18 Guangzhou Daily, November 21, 2011, “Banks Make Greater Efforts to Expand Small and Medium Enterprise Loan Scale”. 19 Sohu, December 23, 2011, “Nine Financial and Taxa￾tion Policies and Measures of the State [Council] to Resolve Financing Difficul￾ties for Small and Micro￾enterprises