The Effects of Interest Rate Liberalization on Small and Medium Enterprises

Abstract

The financing difficulties faced by small and medium enterprises (SMEs) are major problems hindering the development of the Chinese economy. These challenges not only impede the growth potential of SMEs but also limit innovation and job creation, posing a significant hurdle to overall economic progress in China. This article first presents the financing difficulties of SMEs and examines the reasons causing these difficulties. Then, this article briefly introduces the interest rate liberalization reform in China. After that, this article discusses three effects of interest rate liberalization on SMEs. The first effect is the reduction of the financing cost; the second effect is the increase of accessibility of loans; and the last effect is the transfer of credit resources from large and state companies to SMEs. Then, suggestions on how to tackle the financing difficulties are provided from the perspective of SMEs, financial institutions, and authorities respectively. Lastly, this article concludes that interest rate liberalization reform is conducive in helping enterprises and economic recovery.