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Insights

In the last few years, the role of business is becoming crucial in the effort of reducing poverty, whether in the sustainable development goals under the United Nations, or the precision poverty relief goals in China. Major international development organizations, such as the World Bank and the Asian Development Bank, have acknowledged the presence of business, which plays a remarkable role in poverty alleviation. Since last July, Venture Avenue has been appointed as a consultant to Asian Development Bank (ADB) in China, to explore how business could effectively contribute to poverty relief in China.

Hegang, Jixi, Qitaihe and Shuangyashan are four coal-rich cities located in eastern Heilongjiang Province. Historically, the four cities have been reliant on coal for economic development. With the recent decline in coal mining and processing industries, the economy of the four coal cities has been deteriorating.As one of the most important measures to revitalize local economy, the four coal cities are striving to restructure industries through the promotion of developing new non-coal pillar industries.

ADB invests in the four coal cities to improve infrastructure with a premise that the population in these cities will continue to rise, thus a growing demand for more infrastructures. However, there has been an increasing number of people leaving these four cities, due to less employment opportunities, as a result of business struggling with growth. The trend will continue, if there is no investment supporting the development of local business and creating more jobs. Under such trend, the demand for infrastructure will also drop. To ensure the full use of infrastructure investment and promote the restructure of local economy, the four coal cities must identify effective methods of creating employment to retain the people. SMEs are critical in tax revenue contribution and manufacturing in the four coal cities, so it is necessary to provide the support they need to keep the people and drive the development of diversified non-coal economies. Therefore, one condition of using the ADB loans to invest in infrastructure projects is that part of the fund must be used to support the local SMEs.

SMEs in the four coal cities are not without their own problems, mainly in: 1. Difficulty in obtaining relatively long-term affordable financing; 2. Shortage of talents; 3. Limited sales and market share; 4. A lack of access to high-level industry practice.

To fully solve these challenges, ADB understands that financial institution loan (FIL) alone is not enough. Many SMEs struggle with strategic planning, financial management, marketing and other important areas and are not able to get the appropriate professional supports. Therefore, apart from financial support, ADB also emphasizes the business development service (BDS) to address the key challenges mentioned above.

Also, the BDS can help SMEs improve their business models for better development. It avoids stalling investment. As a result, it reduces the possibility of defaults, as well as the risks of bad debt for business and local government.

In addition, the BDS will optimize the environment in four coal cities supporting SMEs, improving the capacities of the local SME bureaus, development zone and SME alliances. With the capacity enhancement of these supporting organizations, promotion of local SMEs development will be in place for even longer period.

All in all, it is in the vision of the ADB, that supporting SMEs requires both financial support and business development enhancement, and the two complement each other. We make the following recommendations that local government and professional organizations can offer to support SMEs: 1. One-on-one consulting services for SMEs of high potential; 2. Establish equity investment funds for SMEs; 3. Build a regional Internet service platform for local SMEs; 4. Improve the capacity of the SME associations; 5. Strengthen the grouping of local non-coal industry cluster; 6. Connect to academic institutions and think tanks.