New Measures on Administration of Special Funds for the Development of Small and Medium-sized Enterprises

On May 25th, 2012, the Ministry of Finance (“MOF”) and the Ministry of Industry and Information Technology (“MIIT”) of the People’s Republic of China (“PRC”) jointly issued the Measures on Administration of Special Funds for Development of Small and Medium-sized Enterprises (hereinafter referred to as the “New Measures”) which shall enter into force as of the date of its promulgation. The Interim Measures on Administration of Special Funds for Development of Small and Medium-sized Enterprises (hereinafter referred to as “Interim Measures”) that was issued in 2008 shall be simultaneously annulled.

By comparison with the Interim Measures, the key points of the New Measures are as follows:

1. A New Category of Enterprises

There were only two categories of Small and Medium-sized Enterprises (“SMEs”) in the Interim Measures, one of which is the category of small enterprises and the other is the category of medium sized enterprises. In the New Measures, a new category of ´micro-enterprises´ is included.

2. Key Industries

Major support will be granted to productive service industries, such as high-tech service industry, commercial service industry and modern logistics industry, in order to strengthen and improve the services for SMEs in entrepreneurship, innovation, quality, management consulting, information service, personnel training, market expansion and so on.

3. Application and Management of Special Funds

´Special Funds for Development of SMEs´ should be managed under the budget of the central government as allocated to SMEs (especially to micro-enterprises) for technological changes, structural adjustment, transformation of development patterns, increase of employment, improvement of service environment and so on.

MOF and MIIT emphasized that the application and management of special funds should be in accordance with the national macro-economic policies, as well as with the preferential policies for China’s central and western regions.

Furthermore, the allocation of special funds will be factor-based rather than item-based according to the New Measures.

4. Methods and Limits of Funding

Special funds will take two modalities of financial support and discount loans of which a SME can only choose one. A SME can only apply for one project in the same year. Besides, special funds are not applicable if the project has obtained financial support from central government otherwise.

Special funds for each project through financial support or discount loans should be, in general, no more than 2 million RMB. The limit of special funds through discount loans will be determined according to the loan limit and lending rate for the same period announced by the People’s Bank of China. Special funds for projects that focus on the improvement of service environment for SMEs, especially micro-enterprises, should normally be no more than 4 million RMB.

General Comment:

The New Measures clarified certain issues relevant for the management and utilization of special funds for the development of SMEs and provided preferential treatment to micro-enterprises and SMEs in China’s central and western regions. The New Measures also show the Chinese government’s determination to promote the productive service industries and enhance the competitiveness of SMEs.