China Announces $2.5B Fund For Small Businesses

China small business fundBy Joe McDonald

BEIJING (AP) -- China announced more help Wednesday for its struggling private business sector, unveiling a $2.5 billion fund to finance new small businesses and promising tax breaks and more lending for entrepreneurs.

The Cabinet announcement was one of the first concrete measures announced by the government following repeated pledges to help entrepreneurs who have been squeezed by a slump in U.S. and European demand and curbs on bank lending.

Entrepreneurs generate most of China's new jobs and wealth, but thousands have been driven out of business. The survivors have slashed payrolls, raising concern among China's communist leaders about possible unrest.

A Cabinet statement issued after a meeting led by Premier Wen Jiabao, the country's top economic official, said small companies were essential to helping China keep growth fast and stable despite the global downturn.

The government will create a 15 billion yuan ($2.5 billion) fund "primarily to support the start-up of small and micro-enterprises," it said.

It gave no details but also promised a cut in taxes and fees and said small businesses will be guaranteed a portion of government purchases of goods and services.

Beijing ordered the state-owned banking industry to lend freely to help China's economy rebound from the 2008 global crisis. But it clamped down on credit to preventing overheating after annual economic growth soared above 10 percent in 2010.

Economic growth fell to a 2 1/2-year low of 8.9 percent in the final quarter of 2011.

Two surveys released Wednesday gave mixed signals on manufacturing activity in January but both showed it largely unchanged.

The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index rose 0.2 points to 50.5 from December's 50.3 on a 100-point scale on which numbers above 50 indicate growth.

HSBC Corp. said its HSBC China Manufacturing PMI was little changed at 48.8 from December's 48.7, suggesting a "moderate deterioration."

The credit clampdown battered entrepreneurs as banks channeled their limited lending to politically favored government companies. Entrepreneurs turned to high-interest underground lenders. Thousands went bankrupt, leaving employees and suppliers unpaid.

The government responded in October by ordering banks to step up lending to small businesses, though it is unclear whether credit has increased.

Wednesday's statement promised to create more small-scale financial institutions to serve entrepreneurs and rural companies.

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