Xinhua has an article today on an interesting exposition held in Guangzhou that really makes you realize how far things have come here. The purpose of the expo, the "Third Small and Medium Enterprises Fair," was to give SMEs the chance to meet with commercial lenders. The interesting part of all this is the participation of foreign lenders Citibank, Standard Chartered and HSBC, who are vying to make significant gains in the SME commercial loan market in China. These are RMB loans of course, an area legally barred to foreign lenders just a few years ago.

There are many reasons to be happy about this. First, although China is awash in liquidity at the moment and the State is actively trying to slow things down, SMEs still find it difficult to obtain small-scale commercial loans. This is not a new problem but one that has hindered start-up and expansion plans for lots of Chinese entrepreneurs for a long while. Beijing realizes not only that bad loans to State-owned Enterprises need to cease, but also that funds must be made available to entrepreneurs to assist with sustainable growth (i.e. job creation).

Second, participation of foreign lenders is good not only for the SMEs and the economy as a whole, it is also good for the financial sector. These lenders and others are actively working on credit management and reporting systems that will someday lead to a whole new level of stability for domestic business. I look forward to the day when a real credit check will be possible instead of looking at an enterprise's registered capital - a poor proxy at best for solvency and market strength.

Third, foreign lenders who make substantial inroads into this market will hopefully ingratiate themselves will local governments in China. The Guangzhou expo was cosponsored by the local CBRC and MOF offices. These are some of the guys that need to stay happy as we move into 2007 when new banking liberalizations (e.g. RMB deposits for individuals) will kick in and foreign lenders scramble even harder for business.