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China to extend direct-benefit monetary policy tools to anchor market expectations

Wang Keju
Updated: Dec 22,2020 09:56 PM

China will continue the policies on inclusive loan repayment extension and credit loan support program for smaller businesses, with a view to keeping the main economic indicators within an appropriate range, maintaining the continuity, stability, and sustainability of the policies, spurring vitality of market players and anchoring market expectations, the State Council executive meeting chaired by Premier Li Keqiang decided on Dec 21.

Competent departments devised two monetary policy tools this year, in an effort to funnel intensified, direct support for the real economy and help tide businesses over any difficulties. That is, the loan extension that encourages local banks (namely, urban and rural commercial banks and rural credit cooperatives) to provisionally defer smaller businesses’ inclusive loan repayments with incentives in place, and the inclusive credit loans that provide local banks with concessional funding support.

The implementation of these policy tools combined have achieved remarkable results, benefiting over 3.1 million smaller market entities, and playing a positive role in alleviating financial pressure on enterprises, assuring market entities, and securing employment.

“This year, China’s economy is able to achieve positive growth. This is attributable to financial institutions’ intensified support for micro, small and medium-sized enterprises,” Premier Li said. “The Central Economic Work Conference has underlined that necessary support for economic recovery should be sustained, with well-calibrated and more effective policy operations.”

Attendees at the meeting agreed that the economy is steadily returning to normal, and required continued efforts to help address any pressing concerns facing enterprises regarding their production and operation and to ensure proper policy transition and adjustment.

It was decided at the meeting that the provisional deferral policy for both principal repayment and interest payment on smaller businesses’ inclusive loans will continue to be executed in the first quarter next year, and loan repayment further extended within a proper time frame. Inclusive loans granted to micro and small businesses will be extended as much as possible in line with market principles and upon consultations between enterprises and banks.

Incentives will be put in place for local banks that provide inclusive loans for micro and small enterprises with a deferred repayment period of no less than six months. The incentives will remain at 1 percent of the loan principal.

Those at the meeting also decided that the inclusive credit loan support program will be extended from the end of this year as appropriate. Concessional financial support at 40 percent of the loan principal will continue to be given to eligible local banks for their issuance of inclusive credit loans to micro and small enterprises.

“Implementation and appropriate extension of the direct-benefit monetary policy tools will help small and micro enterprises better respond to changes at home and abroad and realize stable recovery of production and operation,” Premier Li said.