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SINGAPORE: The equity market in China is seeing strong growth as banks increase their lending to more small and medium companies.
Industry watchers say such businesses now contribute about 40 percent of China's Gross Domestic Product.
This is double the figure seen 10 years ago.
The SMEs in China also hire up to 80 percent of urban employment.
Small and medium companies in China today require more funding to expand their businesses.
And investment bank BNP Paribas says Chinese banks can expect to generate significant returns over the next five years by lending to them.
Dorris Chen, Head of Regional Financials, BNP Paribas, said, "It's like if you are coming from a very low penetrating status and now you have new bank credit pump into SME segment, it has to grow and there is similar survey in Guangdong province.
"(I think) out of the problems (the hurdles) for growth, private enterprise that responded to the survey, over 60 percent will list the lack of credit supply as number one hurdle for growth."
Although China's economic growth is slowing, BNP Paribas says large cap companies like Sinopec and China Mobile are still expected to perform well over the next 12 months.
It feels these stocks are currently undervalued.
Erwin Sanft, Head of China and Hong Kong Equities Research, BNP Paribas, said, "We are not going back to double digit growth in China. We are looking at single digit growth in the future, but our point of view is that single digit growth in china, high single digit is still enough to be invested into the market. Valuations are low. This type of growth, given the current valuation level, is enough for people to make good money in the market."
BNP Paribas retains its China growth forecast at between 8 and 8.8 percent for the whole of next year. - CNA/fa
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