(Yicai Global) Sept. 28 -- China has introduced new measures to help solve the old problem of difficult financing and exorbitant funding costs for smaller, less profitable enterprises.

 A State Council executive meeting Chinese Prime Minister Li Keqiang presided over yesterday resolved to help offer loans to smaller firms at lower costs by exempting financial institutions from paying interest value added tax (VAT) and smaller enterprises from paying stamp taxes on loan agreements and by introducing targeted reserve requirement ratio (RRR) cuts and providing refinancing support.

 "These measures will provide great support for smaller companies in terms of financing. The government has a clear orientation to support smaller businesses," Feng Qiaobin, professor at the Chinese Academy of Governance, told Yicai Global.

 "Banks are profit-seeking. We cannot expect them to voluntarily increase loans to smaller firms since such loans are risky. However, interest VAT and stamp tax exemptions, targeted RRR cuts and refinancing support, in effect, lower the cost of lending to smaller companies, incentivizing lenders to extend loans to these firms," Feng said.

 Major loans made by banks are collateral loans, while a lack of valid collateral prevents smaller firms from securing bank loans.

 To solve this issue, the meeting called for vigorously support of the development of policy financing guarantee institutions and re-guarantee institutions and endowment of a national financing guarantee fund as quickly as possible.

 China will also establish a policy agriculture loan guarantee system covering provinces, municipalities and counties in three years to support financing by eligible smaller agricultural companies.

 The meeting also urged relaxing requirements imposed on applicants for entrepreneurial collateral loans with interest subsidies in commercial loan records and simplifying collateral right renewal registration and distressed asset disposal procedures.

 Fiscal and financial policies the meeting proposed will help foster an accommodating growth environment for smaller enterprises and breathe life into them, Yang Zhiyong, a researcher with the National Academy of Economic Strategy of the Chinese Academy of Social Sciences, told Yicai Global.

 Smaller businesses account for about 94 percent of Chinese companies, including sole-proprietorship shops, and employ 150 million, according to the report on the development of China's smaller firms released by the State Administration of Industry and Commerce in 2014. They also create more than 70 percent of new jobs and contribute to over 70 percent of reemployment.