Beijing reaffirms commitment to credit support to boost real economy

The cabinet unveils a host of initiatives to spur restructuring and maintain balanced growth

PUBLISHED : Thursday, 20 June, 2013, 12:00am
UPDATED : Thursday, 20 June, 2013, 3:53am

Beijing has reaffirmed its commitment to credit support for the real economy amid concerns over slowing output growth and rising risk in the mainland's financial sector.

At a meeting of the State Council chaired by Premier Li Keqiang yesterday, the cabinet unveiled a raft of initiatives to spur economic restructuring and maintain balanced growth. The economy grew at a slower-than-expected pace in the first quarter.

The State Council said it would guide credit flows into the real economy while curbing the influx of money into sectors struggling with overcapacity.

The cabinet also promised to give small businesses and borrowers in the agricultural sector preferential access to financing.

While maintaining a prudent monetary policy, it said it would offer financing support to spur consumption in areas such as schooling, tourism and affordable housing as well as purchases of big-ticket household goods.

Credit growth on the mainland, particularly loans from "shadow banks", has been rapid this year, but much of the money has failed to reach the real economy, raising concerns among analysts over mounting debts at banks and a lack of investment to help pull the country out of the slowdown in growth.

Because mainland businesses cannot rely on the stock market for financing, Liu Jipeng, an economist with the Capital University of Economics and Business, said the banking system must be reformed soon given the gloomy economic outlook.

On one hand, Liu said, mainland banks - particularly the five state-owned banks that enjoy an oligopoly - have amassed plenty of cash. On the other hand, small businesses have no place to borrow, while loans from these banks are too expensive.

Liu said some interest rates for small businesses could be as outrageously high as 15 per cent.

He said economic development is a precondition for addressing the risks at financial institutions.

"But if government does not initiate reform of banking institutions and tackle their monopoly status to better serve the economy, we might see an economic crisis that we could otherwise avoid," Liu warned.