- Root cause lies in information and collateral gaps
- Policy is in place; delivery mechanisms lag
- Fix credit data, guarantees, and risk sharing
1. Introduction: Beyond the "Banks Won't Lend" Narrative
Difficult financing for private enterprises is a topic that has been discussed for over two decades in China. Its persistence suggests it is not merely a matter of lending willingness. When the Private Economy Promotion Law took effect on May 20, 2025, it affirmed the equal status of the private sector and called for improved financing support and financial services. The policy signal is clear, yet firms often feel the change slowly. The reason is that financing difficulty is largely a structural friction: capital is not scarce; what is scarce is a safe and efficient channel to move it toward small and mid-sized private firms.
Understanding this helps avoid reducing the issue to "lazy banks" or "weak firms," and points toward workable solutions.
2. Structural Causes: Three Persistent Mismatches
First, information asymmetry raises the cost of credit assessment. For many small private firms, financial records vary in quality, and operating data is scattered across tax, utility, logistics, and platform systems. Banks must spend heavily to verify real business conditions. When loan sizes are small, such costs are hard to cover, making "reluctance to lend" a rational choice.
Second, collateral dependence clashes with asset-light reality. Traditional credit risk control relies heavily on real estate collateral. Yet many private manufacturers, service providers, and tech firms hold equipment, patents, orders, and talent as core assets—not land or buildings. Without sufficient collateral, even firms with steady cash flow can be blocked at the approval stage.
Third, risk pricing and tolerance mechanisms are misaligned. Smaller firms naturally fluctuate more. If interest rates cannot reflect risk, lenders lack incentive; if rates are too high, firms cannot afford them. Meanwhile, frontline loan officers face strict accountability, where a single bad loan affects evaluations—making due-diligence liability exemptions hard to apply in practice.
Together, these mismatches form the structural backdrop of private-sector financing difficulty.
3. Workable Solutions: From Policy to Mechanism
First, turn credit information into usable risk-control assets. Platforms linking tax and credit data, bank-tax data collaboration, and supply-chain instruments aim to break data silos, letting tax payments, electricity use, and order fulfillment records support credit decisions. Mature mechanisms like these improve access more than simply expanding relending quotas.
Second, expand movable and rights-based collateral. Receivables, inventory, intellectual property, and order financing already have legal and registration support. The key is whether lenders can build matching valuation and disposal capabilities instead of falling back on "we need a building."
Third, strengthen risk sharing and due-diligence liability exemptions. Government financing guarantees, risk compensation funds, and bank-guarantee risk sharing essentially use public credit to complement market credit and lower lenders' trial costs. Turning due-diligence liability exemptions from written clauses into workable processes is what makes frontline staff willing and able to lend.
Fourth, firms must improve their own "financiability." Standardized finances, continuous tax records, and a proactive credit history may seem basic, but they directly shape how banks see a company. Financing capacity is not something that can be fixed at the last minute; it is the result of long-term operations.
4. Conclusion
The Private Economy Promotion Law provides more stable institutional expectations, but the life of law lies in its implementation. The structural causes of financing difficulty mean it will not disappear with a single policy. It requires simultaneous progress in credit infrastructure, guarantee tools, risk sharing, and enterprise management. For private firms, rather than waiting for a looser credit environment, treating credit transparency as a long-term investment is wiser. For financial institutions, building genuine expertise in serving smaller private firms is the sustainable path. The answer to financing difficulty lies not in a single breakthrough, but in coordinated mechanisms.