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China to encourage financial institutions to make interest concessions and expedite fee cuts to boost real economy

Zhang Yue
Updated: Jun 18,2020 12:02 AM    english.www.gov.cn

China will encourage its financial institutions to make interest concessions as appropriate to businesses to help keep economic fundamentals stable, and ensure that all fee-cutting measures are fully executed on the ground in an effort to ease corporate burdens.

A host of policy steps were decided on at the State Council’s executive meeting chaired by Premier Li Keqiang on June 17.

Enterprises, particularly smaller ones, have been hit hard by COVID-19, and the Chinese government pays close attention to helping them overcome any difficulties. General Secretary Xi Jinping stressed the imperative to optimize the fiscal, financial and social security policies to better support smaller firms get through the challenging time. Premier Li Keqiang said fiscal and financial measures should be fully employed to help small and micro businesses survive, and encouraged banks to step up support as companies strive to stay afloat.

“In the past weeks and months, financial departments and institutions have taken effective moves to tackle the economic impact of the coronavirus. Real interest rates have come down, and aggregate financing is expanding,” Premier Li said. “Interest concessions by financial institutions are a key measure in supporting the real economy, especially smaller firms, and keeping economic fundamentals stable.”

To advance the six priorities where stability is key and the six where protections are needed, the meeting underlined the need for stronger monetary and financial policy support for the real economy, and help tide smaller businesses over difficulties as financial institutions and the businesses who borrow from them have a stake in each other’s success.

By lowering the reserve requirement ratio (RRR), increasing re-lending and re-discount quotas and deepening the loan interest reform, the amount of RMB loans made between January and May saw a significant increase over the same period last year. Overall financing costs faced by companies trended downward.

Stronger efforts were urged to bring down the lending and corporate bond rates, make concessional-rate loans, defer loan repayments for micro, small and medium enterprises, and support the issuance of no-collateral loans to small and micro companies, and reduce fee-charging from banks. These efforts combined are expected to bring benefits amounting to 1.5 trillion yuan to companies of all types this year.

The meeting called for better leveraging such policy tools as RRR cuts and re-lending to keep liquidity reasonably sufficient, and intensifying efforts to make financing more accessible for enterprises and help them tackle their financial woes. The goal this year is for both new RMB loans and aggregate financing to expand more than last year.

“Market principles should be followed in making the interest concessions. Financial institutions need to ensure that their measures are well-calibrated with the right focus,” Premier Li said.

The newly increased funds should be funneled into manufacturing and the service sector, especially smaller companies, to provide much-needed relief for enterprises in times of hardship. The funds are also expected to make financial institutions more motivated and better equipped to serve the needs of smaller firms.

The capital funds of small and medium banks will be replenished as appropriate. Banks are urged to improve their internal evaluation and incentive mechanisms, and raise the weight of inclusive finance in performance evaluations.

Non-performing loans will be dealt with more effectively. No unwarranted extra conditions should be imposed in loan extensions. Meaningful progress must be achieved to make lending more accessible and affordable for market entities.

“More measures should be taken to facilitate the execution of macro policies. The monetary policy tools that can directly benefit businesses must be fully utilized, and related mechanism established to prevent funds from flowing into unintended areas, or simply circulating in the financial system, and avert financial risks,” Premier Li said. “The internal incentive mechanisms within banks should be stepped up, otherwise they are still reluctant to lend to small firms.”

The meeting required full delivery of all fee-cutting steps introduced this year. The policy of reducing electricity prices for general industrial and commercial businesses by 5 percent, reducing or canceling civil aviation development fund contributions and port development fees, and halving the payments for Vessel-Source Oil Pollution Compensation Fund will be extended to the end of this year. The rates for broadband and dedicated internet access services will be cut by 15 percent on average. Together with the fee cuts made in the first half of this year, these measures will save enterprises over 310 billion yuan for the whole year.

“The fee cuts promised must be fully delivered. Firmer steps must be taken to curtail any unauthorized levy of fees. No arbitrary charges should be imposed. The ultimate solution still lies in fostering a market-oriented and world-class business environment governed by a sound legal framework,” Premier Li said.

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