New measures to ensure meaningful reduction in MSEs’ financing costs
China will work to ensure financing costs faced by micro and small enterprises (MSEs) are further reduced, with the goal of increasing outstanding loans offered by five large State-owned commercial banks to MSEs by more than 30 percent this year, compared with 2018, the State Council executive meeting chaired by Premier Li Keqiang decided on April 17.
The Chinese government puts great importance on work related to MSE financing. General Secretary Xi Jinping stressed on multiple occasions the need to deepen supply side structural reform in the financial sector, strengthen financial services for the real economy, and tackle the problem of inaccessible and unaffordable financing faced by MSEs. Premier Li Keqiang said repeatedly that it is imperative to take a multi-pronged approach to significantly ease any financing woes MSEs face, and set out clear goals for cutting their financing costs.
“Lowering MSEs’ financing costs is a pressing issue in our economy today,” Premier Li said. “Our prudent monetary policy should be eased or tightened to the right degree to keep liquidity reasonably sufficient. We need to exercise well-timed regulation, rather than flood the economy with stimulus measures.”
It was decided at the meeting that the government must make flexible use of various monetary policy instruments. The scale of re-lending and re-discounts will be expanded, and more targeted cuts in the required reserve ratio for small and medium-sized banks will be made. A policy framework for applying a fairly low required reserve ratio for small and medium-sized banks will be established. Funds that are newly freed up from these measures will be used for lending to private companies and MSEs.
Bond financing support instruments will be promoted to see that the scale of both bond financing by private firms and special bonds issued by financial institutions for MSEs exceed the 2018 level.
Banks need to improve the evaluation and incentive mechanism to strengthen their confidence, readiness and capacity in lending to MSEs, the meeting urged. The government will support banks in formulating inclusive finance plans dedicated to MSEs and guide banks toward proper pricing of lending.
All these measures are designed to ensure that the balance of loans extended to MSEs by the five State-owned commercial banks, namely, the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications, will increase by over 30 percent this year, and the overall financing costs for MSEs will be trimmed by another one percentage point over last year. “We must resolutely bring down the financing costs for MSEs. This is a crucial task in promoting economic development, as it helps lift employment and contributes to the healthy and steady growth of private companies,” Premier Li said. Attendants at the meeting decided to use government-backed financing guarantees to lower financing fees for enterprises. The central government will continue to allocate funds under public finance to incentivize reductions in the guarantee fees of MSE financing. The State Financing Guarantee Fund will support no less than 200 billion yuan in guaranteed loans to at least 100,000 MSEs this year.
The goal of capping the guarantee rate at one percent for MSEs with a guarantee volume of 5 million yuan or below, and 1.5 percent for those with a volume above 5 million yuan, must be achieved across the country as soon as possible.
It was also decided at the meeting that the government should further guide banks in raising the share of credit-based loans and reduce dependence on collateral guarantees. More efforts will be made to overhaul intermediary fees, including surcharges for collateral registration, asset evaluation and bridge loans, to ease the financing burden on businesses.
Related departments are required to conduct inter-agency inspections on unjustified and arbitrary charges in corporate financing to ease the burden on enterprises.