Central cabinet outlines measures to ease SME financing costs
The central cabinet has issued a guideline detailing measures outlined at a July meeting to ease funding bottlenecks for companies, particularly smaller ones.
The State Council document, dated August 5 but posted on its website yesterday, came a day after the central bank reported sharply lower credit data. Total social financing tumbled to almost a six-year low last month, fuelling slowdown concerns.
As "downside pressures remain large" in the economy, the cabinet said it was important to ease high financing costs. While large, state-owned enterprises can take out loans at 5.8 per cent interest, borrowing costs for smaller firms can be as high as 17 per cent.
It added the central bank should keep liquidity "steady and appropriate", ensure good implementation of targeted reserve requirement ratio cuts, and increase lending to areas such as shanty town renovation, railways, services and energy saving.
New yuan loans slumped to 385.2 billion yuan (HK$484.8 billion) in July from June's 1.08 trillion yuan due to seasonal factors, but also reflected sluggish industrial demand and banks' caution on rising bad loans, analysts said.
"More policy easing is unavoidable and lowering the financing cost of the economy is the top priority" for the central bank as Beijing remains keen to achieve a growth rate around 7.5 per cent, said Barclays Capital economist Chang Jian.
The State Council said it would cut the weighting of deposits and asset size in banks' performance evaluation to discourage them from purely chasing scale and profits, in a bid to guide them to channel loans to the weaker areas of the economy.
Authorities should expand financing channels for banks and other institutions, including pushing forward securitisation backed by credit assets, and roll out "as soon as possible" internet finance regulations, it added.
The government will also expand the scope of tax cuts for long-term fund investments in the capital market and lower the threshold for banks to issue financial debts targeting small and rural companies.
Companies that belong to industries with excessive capacity but are run profitably will receive differentiated treatment, the guideline said, implying that lending curbs to such businesses might be loosened.
It reiterated the government would "orderly" push forward interest rate reforms, without elaborating.