Two sessions 2021: China’s banks to increase lending to small businesses by 30 per cent

Beijing also plans to further strengthen regulation of fintech, financial holding companies
Fintech firms have been a major lending source to small businesses in China

Banking & finance

Chad Bray

Published: 3:54pm, 5 Mar 2021

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China plans to increase the number of “inclusive” loans offered by its biggest banks to micro and small businesses by more than 30 per cent in 2021, even as it continues to enact new lending rules and increase its scrutiny of the nation’s financial technology (fintech) industry.

As part of the government’s latest five-year plan, Premier Li Keqiang said banks would be encouraged to increase credit loans and first-time loans and would provide “targeted support” for companies and sectors that continue to be affected by the fallout from the coronavirus pandemic.

Beijing will also expand its efforts to stop monopolistic behaviour in the tech industry and curtail the “unregulated” expansion of capital, Li said.

“We will strengthen regulation over financial holding companies and financial technology to ensure that financial innovations are made under prudent regulation,” Li said as part of the government work report to the National People’s Congress on Friday. “We will improve the mechanism for managing financial risks, see responsibilities are fulfilled by all the stakeholders, and ensure that no systemic risks arise. Financial institutions must serve the real economy as they should do.”

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China’s economy contracted sharply at the start of 2020 as the coronavirus pandemic forced lockdowns and curbed global travel, but ended up being one of the few economies to grow last year. Its gross domestic product ultimately grew by 2.3 per cent for the year and Beijing is targeting growth “above 6 per cent” in 2021.

Small businesses were hit particularly hard by the pandemic and the government said on Friday it would continue to allow micro and small businesses to defer principal and interest repayments on inclusive-finance loans and offer increased support.

The government’s push to offer more credit to small businesses comes as it moves to tighten its control over the nation’s fintech industry, which has served as a major funding source for micro and small businesses.

The rising influence of online lenders outside the nation’s biggest state-controlled banks has raised concerns about potential risks to the country’s financial system. Lending by fintech firms topped US$516 billion in 2019, a 42 per cent rise over the prior year, according to the most recent figures from China’s central bank.

Premier Li Keqiang (pictured) said Beijing would encourage more lending by its biggest banks to small businesses this year. Photo: Xinhua

On November 3, regulators abruptly shelved a mega US$34.5 billion dual listing by Ant Group in Shanghai and Hong Kong, over concerns that the Hangzhou-based firm was a potential systemic risk and in breach of consumers’ privacy. The government then unveiled a bevy of new fintech regulations and said it would conduct an antitrust inquiry into the country’s technology sector.

“The state supports platform enterprises in pursuing innovative development and enhancing international competitiveness, while ensuring that their business operations are well regulated in accordance with the law,” Li said on Friday. “We will step up efforts against business monopolies and guard against unregulated expansion of capital, and ensure fair market competition.”

Ant, which operates the Alipay mobile payments platform, is moving to overhaul its operations by shifting its major businesses into a financial holding company overseen by regulators in Beijing, according to people familiar with the matter. Ant is an affiliate of Alibaba Group Holding, the owner of the Post.

In February, the China Banking and Insurance Regulatory Commission (CBIRC) said online lending platforms would be required to contribute at least 30 per cent of the funding they offer in partnership with traditional banks beginning on January 1, 2022.

Typically, online platforms such as those operated by Ant Group, JD Digits and Lufax, contribute about 20 to 40 yuan for every 1,000 yuan (US$155) of loans they make. Commercial banks assume most of the underlying credit risks.

On Tuesday, Guo Shuqing, the CBIRC’s chairman, said online finance companies would be free to continue innovating but digital banks, such as Ant’s MyBank, would need to comply with the same regulatory scrutiny as traditional banks.

At the same time, Li said local governments would issue a smaller amount of special-purpose bonds this year as Beijing tries to keep a lid on debt.

Local governments would issue 3.65 trillion yuan of special-purpose bonds, a 2.7 per cent decrease from the prior year.

“We will improve our policies for encouraging the participation of non-governmental capital, and do more to remove barriers impeding private investment, so that such investment can enter, develop and yield good returns in more fields,” said Li.

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