The landscape of financial services for small and micro enterprises in China has been evolving rapidly between 2018 and 2023, witnessing a staggering annual growth rate of over 20% in inclusive microloansThis considerable growth is evidence of an array of supportive macroeconomic policies, including enhanced regulation, tax reductions, and strong promotion of inclusive financeThese efforts have significantly lowered the financing costs for small businesses, breathing new life into the private sector and contributing to the gradual alleviation of the financing challenges that these enterprises face.

However, the financing structure primarily based on indirect lending shrinks the potential for solving the issues of high costs and inaccessibility of credit for small micro enterprisesAlarmingly, data suggests that nearly 70% of these businesses express a need for credit, yet only about 20% manage to secure loans from banks, placing immense pressure on these enterprises

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The crux of the problem lies in the asymmetry of information between lenders and borrowers within the traditional lending modelCompounded by the inadequacies in China's data infrastructure and market application, the capable leverage of data as a key financial factor remains underutilized, thus constraining the full potential of inclusive finance.

Moreover, direct financing avenues also encounter numerous obstaclesFor instance, small and micro enterprises hoping to tap into the capital markets through avenues such as the ChiNext Board, Science and Technology Innovation Board, New Third Board, and Beijing Stock Exchange face high barriers to entry, insufficient liquidity, and a lack of differentiation in offeringsAdditionally, ongoing shortcomings in the supporting mechanisms governing the capital markets and the relatively small scale of equity financing in China, combined with low risk tolerance, all contribute to the limited impact of direct financing on these small businesses.

Despite these challenges, macroeconomic policy has offered a vital lifeline for small and micro enterprises aimed at bridging economic cycles

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In the future, to usher these businesses towards the formation of new productivity characteristics within a high-quality development phase, a more dynamic reform strategy will be essential for addressing deeper structural issues within the financing domain.

A critical focus for indirect financing should remain on bridging the information gap between banks and enterprises under the prevailing traditional credit systemBy leveraging the multiplier effect of data as a financial element, stakeholders can develop an expansive narrative surrounding “inclusive finance”. Emphasizing the application of fintech solutions and enhancing digital infrastructure will promote better financial services, while also establishing effective communication frameworks between financial regulatory agencies and other economic data producersThis can foster the development of a robust financial credit information database, facilitating a more coordinated and efficient utilization of financial data.

In terms of direct financing, there is an urgent need to enhance institutional quality and efficiency

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An increased focus on boosting the proportion of direct financing could open new avenues for small enterprises, particularly those driven by technological innovationPrioritizing the comprehensive registration system as a key driver of progress, paired with the improvement of complementary systems pertaining to transaction mechanisms, delisting procedures, and rights protection mechanisms, could go a long way in reforming the marketContinuous reforms aimed at increasing the quality of listed companies and bolstering market stability and sustainability will be essential in this path.

Addressing the bond financing landscape is equally paramountWhile it is crucial to prudently manage existing bond default risks, enhancing market-oriented reforms for bond issuance and increasing credit support for small and micro enterprises will have a significant impactInnovating bond financing instruments and creating a diverse range of products, especially in support of technology-driven enterprises, could accelerate the development of asset securitization in this arena.

Equity financing, as a key increment in the realm of direct financing, requires a well-rounded approach to optimize policy frameworks and improve capital supply structures

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Implementing comprehensive adherence to the supervisory regulations surrounding private investment funds, alongside innovative taxation mechanisms and tailored supervisory arrangements for venture capital firms, could leverage the contributions of angel investors, venture capitalists, and private equity in supporting high-quality activities by small enterprises.

Moreover, the continued refinement of investment ecosystems is integral for layering capital market structuresBy considering different characteristics such as industry, market capitalization, and financial metrics for varied design in market segments, the integration between regional equity markets and higher-tier capital markets could be acceleratedThis will forge broader exit channels and options, opening doors for sustainable financing avenues while guiding long-term investment towards innovative and high-potential enterprises.

Finally, there is an ongoing necessity to enhance the financing services available throughout the lifecycle of small and micro enterprises