SHENZHEN - The Chinese government should cut tax and loosen regulation of its financial system to solve problems that small- and medium-sized enterprises (SMEs) are currently facing, according to attendants at the China Hi-tech Forum in Shenzhen on Nov 17.

The government needs to cut tax rather than resort to monetary tightening in order to curb inflation caused by rising costs, said Hai Wen, an economics professor and vice-president of Peking University. Too much tightening will make small enterprises unsustainable, he explained.

He also added that the public should not over-criticize or focus too much on inflation because moderate inflation is needed to secure a higher employment rate.

"If inflation is low, unemployment will be high," he said.

China needs to loosen its regulation on commercial banks to make them able and willing to lend to medium and small enterprises, said Wu Xiaoqiu, d ean of Finance and Securities Institute at the Renmin University of China.

Allowing interest rates to float is an example of deregulation, Wu said. He added that the United States needs to prudentially regulate its banking system because of its openness, a different case for China.

He said China’s regulators should also lower entry barriers for small financial institutions so that they can help small companies in need of capital.

In addition, Wu said China should boost its corporate bond market to alleviate difficulties companies face in financing.

Niu Wenwen, publisher of Founder magazine, said it is at the early development stage that companies are most in need of capital. He added that Shenzhen has a better investment environment for high-tech companies as the city boasts many angel investors.

Hai recommended society appeal for more support to small enterprises in traditional sectors because they are important for employment but often struggle to grow and are not able to acquire private equity and venture capital.