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China to introduce strong financial measures to help smaller firms tide over difficulties

Zhang Yue
Updated: February 25, 2020 22:53

China will roll out a set of strong financial policies, including encouraging financial institutions to provisionally defer loan payments and increase lending at concessional rates, for micro, small and medium-sized businesses, as part of efforts to help them overcome temporary difficulties. These decisions were made on Feb 25 at the State Council’s executive meeting chaired by Premier Li Keqiang.

The Chinese government attaches great importance to the epidemic response. General Secretary Xi Jinping underlined the imperative to scale up financial support to meet companies’ legitimate funding needs, and provide targeted financial services for epidemic control, production resumption and growth of the real economy. Premier Li Keqiang set out clear requirements on establishing special mechanisms to help companies cope with the outbreak impact and ease the difficulties facing enterprises, especially private and smaller firms.

“Statistics show that only a small percentage of micro, small and medium-sized businesses have restarted operations. As these firms are major job providers, we must give them greater support to facilitate their early restart of work and help them through the tough times. Such support can be further intensified for businesses in Hubei province,” Premier Li said.

The meeting decided on additional financial measures in line with market principles and the law to support micro, small and medium-sized companies in restarting operations.

For eligible micro, small and medium-sized firms, including household businesses, experiencing temporary difficulty with liquidity, financial institutions will be encouraged to provisionally defer their principal loan repayments. Their interest payments can be deferred to June 30, with penalty interest payments exempted. This policy will apply to all types of businesses in Hubei province.

“The provisional deferment policy for both principal repayment and interest payment is no small step. Execution of this policy must fully comply with the law and be subject to adequate oversight. This policy should also work in tandem with the fiscal support and banks’ re-lending to form synergy and produce holistic effects,” Premier Li said.

It was decided at the meeting that the re-lending and re-discount quota will be increased by 500 billion yuan, with the bulk channeled to small and medium-sized banks to increase their credit support to micro, small and medium-sized businesses.

The re-lending rate targeting rural areas, agriculture, farmers and smaller businesses will be lowered by 25 basis points to 2.5 percent.

Before the end of June, local banks (namely, urban and rural commercial banks and rural credit cooperatives) that issue new inclusive loans to micro and small businesses at a rate no higher than 50 basis points above the loan prime rate (LPR) will be able to apply for re-lending funds to the full amount of the loan extended.

It was decided at the meeting that national commercial banks will be encouraged to offer more loans to micro and small firms, and work toward meaningfully lowering the lending rates from last year’s level.

State-owned large banks are urged to increase the balance of their inclusive loans to micro and small businesses by no less than 30 percent year-on-year in the first half of this year. Policy banks will add a 350-billion-yuan special credit quota to be issued to micro, small and medium-sized firms at preferential rates. Guidance will be given to financial institutions to issue more low-interest loans targeting household businesses.

“Household businesses, large in number and covering extensive sectors, employ over 200 million people, and are hence vital to the livelihood of tens of millions of families and to the stability of the whole society. They have been hit hard in this outbreak. The central and local governments must act in concert to provide them with support and see all supporting measures targeting these businesses be delivered to the full extent,” Premier Li said.