At the SMEs Growth Forum, Cao Fengqi, director of the Research Centre for Finance and Securities at Peking University, said: "Limited financing channels have become a key factor hindering the SMEs' development."

The forum was hosted by Digital Fortune, a financial and economic publication focusing on the growth of SMEs and innovative entrepreneurs.

Cao said it was important for SMEs to expand their financing channels from bank loans to enterprise bonds, from listings to joint venture, from restructures to using venture capital, non-governmental capital and foreign investment.

However, financing for SMEs at present is difficult because the reform of State-owned commercial banks is incomplete, the private and corporate financial systems are imperfect, and the capital market is under-developed.

But the biggest reason why SMEs fail to attract extra funding is because they lack credit histories with financial organizations.

"The most important solution for SMEs' financing problem is to set up an improved financing credit system," Cao said.

He called for the establishment of inspection, credit evaluation and credit guarantee systems.

In addition, it is important to establish and improve the legal system to regulate and promote the development of SMEs.

The further development of SMEs is the key to easing domestic unemployment as well as promoting economic development and technological innovation.

The country had 29.2 million SMEs by the end of 2001, employing 174 million people and generating more than 50 per cent of the country's gross domestic product.

The SMEs also contributed about 60 percent of the country's exports and 43.2 percent of its tax revenue.

(China Daily December 20, 2002)