The Chinese government will roll out a series of incentives to make financing more accessible and affordable for small and micro businesses to promote cost-cutting in the real economy, the State Council’s executive meeting chaired by Premier Li Keqiang decided on June 20.

The prudent and neutral monetary policy will continue to be in place, and the government will work to keep liquidity sufficient and appropriate, maintain financial stability, strengthen policy coordination to boost market confidence and ensure the economy performs within a reasonable range.

The Chinese government puts great emphasis on financial services for the real economy, including for small and micro businesses. President Xi Jinping stressed that serving the real economy is a basic requirement for the financial sector, and it is vital to provide small and micro businesses with cheaper and quality financial services to help reduce their costs and serve the wider economic and social development. Premier Li Keqiang called for giving greater priority to small and micro businesses in providing affordable financing to energize businesses and boost employment.

The meeting approved a series of fiscal, tax and financial incentives. The volume of re-financing and re-discounts for small and micro businesses, and for rural areas, agriculture and farmers will be raised. The re-financing interest rates for small and micro businesses will be lowered. Evaluation for financial institutions will be improved to make sure that businesses with a credit quota of 10 million yuan and below can enjoy faster year-on-year loan growth than other types of credit recipients.

Between Sept 1 this year and the end of 2020, the credit quota for small and micro businesses with loans that are eligible for VAT exemptions on interest revenue will be raised from 1 million to 5 million yuan. Meanwhile, the state financing guaranty fund will cover no less than 80 percent of the financing guarantee for small and micro businesses.

Monetary tools will be applied to raise credit support for small and micro businesses. Targeted cuts in banks’ reserve requirement ratios (RRR) and other monetary policy tools will be used to boost credit supply to small and micro businesses.

Also, loans of businesses with credit quota of under 5 million yuan can be included as qualified collateral for mid-term lending facility.

Banks that have yet to establish a financial inclusion department will be encouraged to open branches for communities and small businesses. It was also made clear in the meeting that financial institutions will be prohibited from levying any credit pledging fees or fund management fees on small and micro businesses.

“The issue of lack of affordable financing for small and micro businesses must be taken seriously,” Premier Li said. “The mentality that big banks can only serve big businesses must be rejected. Financial services for small businesses and individuals must be improved.”

This is the third time the State Council put the lowering of financing costs for small and micro businesses on the agenda at its weekly executive meeting since the new government assumed office in March. Establishing a state financing guaranty fund was announced at the meeting on March 28 to help ease financing difficulties for small and micro businesses, farmers, agriculture and rural development. And banks will be evaluated on their performance in inclusive finance to ensure lower financing costs for the real economy this year, as was decided at the meeting on April 25.

“Small and micro businesses are leading job providers, and many of them have strong potential for growth. Their robust development will help achieve high-quality growth and improve people’s well-being,” Premier Li said.

“Vigorous efforts must be made to improve the accessibility of affordable financing for small and micro businesses,” he said. “The banking sector must implement policy measures in a well-coordinated way to reduce financing costs for businesses.”