During a recent visit to China to take part in the most recent dialogue Joanna Drake, Director for Entrepreneurship and SMEs – Deputy Special Envoy for SMEs, DG Internal Market, Industry, Entrepreneurship and SMEs (DG GROW), spoke with Carl Hayward to reflect on the progress made so far and to outline her expectations for the future.
Generally speaking, has the dialogue lived up to expectations so far?
The thing that really works best between two nations—although in this case one side is a European institution—is to get to know the minds, the policies and the strategic vision of the people you are engaging with. From our side we are looking at the strategic vision of what we need for our SMEs – a good business environment, access to finance, reduced administrative burdens, increased market access and perhaps even entrepreneurship, and then see how we compare with China. I think the way to evaluate this properly is to exchange information and I think we have made a good start.
What are your general expectations from the dialogue in 2015?
We would like to concentrate on particular areas. We have a new chairman in Mr Mao Weimin a vice minister from the MIIT. This gives us the opportunities to set new goals, perhaps new timetables and a set of measurable objectives, too. It also gives us the opportunity to try a different approach. This time we are very keen to concentrate on three things in particular.
First is access to finance. It is a different challenge here in China compared to Europe because of the issue of accessibility – this is a challenge to Chinese companies as well but more importantly to European companies who face some discrimination in this respect. Second is cluster collaboration – we hope to achieve concrete cooperation methods on clusters. Third is the Enterprise Europe Network (EEN), which is an old tool in Europe, about 20 years old. It has gained credibility because of the standing that the advisory service providers have with the SMEs they are helping within their particular vicinity.
The Competitiveness of Enterprises and SMEs (COSME) programme was launched in 2014, under which EU SMEs are provided with financial instruments: The Loan Guarantee Facility (LGF) and The Equity Facility for Growth (EFG). Are EU SMEs in China eligible for these instruments?
It depends on whether they are present in a participating country, which would mean any EU Member State or other COSME participating countries, for example Moldova, Turkey or Iceland who contribute financially to the programme without being a member of the European Union. What do we mean by being ‘present’? It means that you have to go beyond having a legal presence there or an address for the company. It means that you have to have staff, a marketing department or research facilities. It means you have to have real, operative presence. Any European company that is present in China and also present in this way in a COSME participating country would be eligible for these financial instruments.
Are there any other financial instruments that China-based EU SMEs can access?
Not specifically, but there is also a financial instrument under the Horizon 2020 programme called SME Instrument. Eligibility would require the same presence I just described but this programme differs in that it supports bottom-up innovation that has not yet been tested on the market but has viable market potential. The SME Instrument has a budget of EUR 2 billion over seven years.
There is also the EU Gateway to China under the Partnership Instrument. This has, I think, not yet been launched, but it is definitely there conceptually. It has a budget of EUR 4.2 million to start with. The idea is to target SMEs that intend to internationalise and provide them with a sort of package of services, like coaching, information, advisory services, interlocutors—who to contact and where—and getting advice on IPR. For companies that want to grow and internationalise, especially coming to a market like China, the big barrier is information and its availability.
Is this something that you will be discussing with your Chinese counterparts?
There needs to be a concerted effort in this respect. If you really want to attract investors, in addition to making financial products available in a non-discriminatory way, making efforts to reduce administrative burdens and improving access to finance, we also need to tackle the linguistic barriers to ensure that SMEs have access to clear and reliable information about the Chinese market. I think this is the way forward – we need transparency and also to simplify the information that is available. It takes us back to the Think Small First principle.
Getting financing in China is very expensive. The most common way is for SMEs to receive loans from banks. However, banks are reluctant to lend to SMEs let alone foreign SMEs. Have there been any significant discussions on this topic during the EU-China SME Dialogue?
We do intend to bring this up, as we have on other occasions as well. We highlight the problem from our side and also encourage the Chinese authorities to do something about it. But it is ultimately a Chinese Government matter that needs to be taken up internally.
There are existing EU-funded support mechanisms to help EU SMEs internationalise – the EU SME Centre and the China IPR SME Helpdesk. How important are they for helping EU SMEs to become more competitive and sustainable?
Since these tools have existed for five years we can take stock a little bit. I think the main idea behind these projects is that they’ve been available to everyone, to all SMEs whichever EU country they come from. These companies need leverage, and I think these European tools have provided that. Have they changed the world, or brought about a paradigm shift? I would say not, but their existence should be acknowledged, and I would say needs to be boosted as well. I would say this is one way that European added value has gained recognition. European added value means just that – it is ‘added’, it is a complimentary tool. Whatever the member states are doing we have absolutely no ambition to replace that, we only want to fill in gaps that otherwise would not be filled. In this respect I think the China IPR SME Helpdesk and the EU SME Centre have gone a long way in proving that European added value is oiling the machine further. We should make more of an effort to make these services better known and more visible to smallest of the small companies in whichever part of Europe they come from and we need to set ourselves measurable targets.
What is your message for EU SMEs in China, particularly now an economic slowdown has been projected for the coming years?
I think when you talk about the slow down you need to be realistic, it’s relative. China is still by far the fastest growing economy in the world. China remains the EU’s second largest partner and the EU is China’s largest trading partner, so I think all Europeans are going to continue looking at China as the natural place to be if they wish to grow.
Despite the opportunities in China there are also many challenges and I do not think these challenges will go away very quickly. So it is up to us, the European Union and the Member States, to put our heads together to try and overcome these challenges and help our SMEs turn opportunities into reality, and to give more SMEs growth opportunities in China. I think this is the main message.