Beijing demands 30 per cent increase in banks’ lending to small companies in bid to boost flagging economy
- Move announced by Premier Li Keqiang could inject US$230 billion worth of capital into SMEs, according to one analyst’s estimate
- It is the first time Beijing has announced a specific target for loans to small companies in its annual work report
The Chinese government has set a mandatory target for the country’s commercial banks to increase lending to small companies by 30 per cent, as Beijing pushes to bolster opportunities for private firms to stimulate an economy that is slowing amid a trade war with the United States.
Beijing will “make solid efforts” to solve the funding difficulties facing many companies, Chinese Premier Li Keqiang said on Tuesday during his 2019 government work report. State-owned large banks must boost their lending to small firms by more than 30 per cent.
The government will also step up targeted cuts in the reserve requirement ratio to spur lending to private companies, he said, referring to the amount of cash banks must keep in reserve which is therefore unavailable for loans.
“It is the first time that the government report has made a specific target for lending to small companies,” said Chen Shujin, chief financial analyst at Huatai Financial Holdings in Hong Kong.
The move could inject as much as 1.8 trillion yuan (US$230 billion) worth of fresh capital into small companies, she said, noting that only between 2 and 6 per cent of the loans made by China’s biggest five banks goes to small companies.
The government also pledged to further level the playing field for foreign companies by relaxing restrictions on investment, and enhancing protection of their legal rights. The US and European countries have frequently complained about the unfair competition they face from domestic companies in China.