China wants to learn SME financing from Finland
China is interested in Finnish SME financing expertise. Within the framework of its state-controlled economy, China aims at developing the SME sector and knows that Finland’s corporate financing system functions well. On the other hand, knowledge about the Chinese financing market benefits Finnish enterprises involved in export trade. In 2018, the volume of export credit guarantees that Finnvera granted for trade with China increased clearly. If demand for export financing, or buyer credit and export credit guarantees, continues to grow in China in the future, too, this fact gives Finns a competitive advantage.
China wants to develop the SME sector to diversify the range of companies in the country and also to strengthen the home market to develop it into the direction of a service community. In China, the state has ordered state-controlled banks to grant 30 per cent of all new lending to SMEs.
“Banks are having difficulties in coming up with ideas of where to lend this enormous sum of money because the credit risk in SMEs is high and banks have suffered major credit losses in the SME sector. That is why SMEs are required to have collateral unlike major state-owned companies. Chinese development and investment banks have expressed interest in Finnvera’s expertise in SME financing as well as in our low credit losses that are based on a thorough enterprise analysis and Finland’s customer data system,” says Mika Relander, Finance Manager at the state-owned specialised financing company Finnvera. He has been posted in China for the spring to analyse the functioning of the Chinese financing market.
In China, corporate financing is mainly provided by banks. Venture capital investment activities are still at rather early stages of development in China, although they are developing rapidly. In addition to the largest Chinese state-owned banks, China Development Bank and China Eximbank, there are many large and medium-sized banks operating in the country, with their operations either directly or indirectly controlled by the state. Furthermore, there is a Finnvera-like credit agency called Sinosure, which takes risks by granting various kinds of guarantees.
“The Chinese would like to learn from Finns the best way to analyse SMEs to make it possible to assess credit risks in advance. China does not have a comprehensive corporate data system, which makes it difficult to conduct a risk analysis based on financial statements information. Information must be collected from variable sources. On the basis of the discussions I have had, China is also interested in how Finns target financing to achieve the best possible impact. However, from the Finnish perspective, a Chinese SME may be a large corporate and the term ‘small and medium-sized enterprise’ is rarely used in China – instead, people talk about private enterprises,” says Relander.
"The Chinese would like to learn from Finns the best way to analyse SMEs to make it possible to assess credit risks in advance.""
Will the use of export credit guarantees and buyer financing increase in China? - A very important piece of information for Finnish exporters
In 2018, the volume of export credit guarantees that Finnvera granted for trade with China increased to nearly EUR 100 million, while the volume had been clearly lower in the previous years. Mika Relander is currently investigating what kind of demand for export credit guarantees and export financing can be expected in the Chinese market.
“The slowing down of China’s economic growth is not visible in demand in Finnish enterprises – at least not yet. At the moment, economic stimulus is visible in China as the good availability of financing, but loan repayment periods are still short, as is customary in China. This may give a competitive advantage to a Finnish export enterprise that can offer longer-term financing to its Chinese client,” notes Relander.
The utilisation of financing in export trade transactions has increased in the past few years. The ability to recognise this is an essential part of the competitiveness of enterprises involved in export trade. The impact study that Finnvera had done among enterprises involved in export trade showed that they may have a high threshold of entry into competitive bidding if they cannot provide the foreign buyer with both the product and a financing package. Financing knowledge is very important also for SMEs that are planning to start exporting or are already involved in export trade.
“Demand for Finnvera’s export financing, or buyer credit and export credit guarantees, in the Chinese market took an upward turn last year, but it will be interesting to see if the growth continues. If it is a question of Chinese buyer enterprises being interested in using more Western financing and export credit agencies in their purchases, this piece of information is extremely valuable and may be the decisive factor that enables Finnish enterprises involved in export trade to win deals,” says Jussi Haarasilta, Executive Vice President at Finnvera.
Jussi Haarasilta, Executive Vice President, tel. +358 29 460 2601, [email protected]
Mika Relander, Finance Manager, [email protected]