Coronavirus: China moves to shore up lending to cash-strapped firms with new provincial oversight offices
- Financial Stability and Development Committee, which oversees Chinese financial regulation, has opened eight provincial offices
- The agency, chaired by Vice-Premier Liu He, will help local authorities revive regional economies hit by the coronavirus
China is increasing financial and management support for provincial governments in their fight against the coronavirus outbreak, including efforts by local authorities to relieve pressure on cash-strapped businesses.
The Financial Stability and Development Committee (FSDC), which coordinates the activities of financial regulators and the central bank, has opened eight new provincial-level offices in an attempt to better coordinate virus response efforts on behalf of the State Council, China’s cabinet.
Chaired by Vice-Premier Liu He, who is in charge of finance as top economic adviser to President Xi Jinping, the FSDC will use the new branches to ensure the rapid implementation of the government’s programme to increase bank lending to support the economy.
The FSDC was created in 2017 to safeguard the stability of China’s financial system after loopholes in financial regulations allowed manufacturing companies and other firms that were not traditional banks to engage in massive risky lending activities – the so-called shadow banking system.
Shadow banking has since been largely dismantled, but many small private-sector businesses relied on it to help finance their operations, presenting a new problem for Beijing as it tries to support economic growth in the midst of the coronavirus outbreak.
Private firms were already struggling to gain access to credit before the virus outbreak dealt a hammer blow to smaller businesses.
In addition, the China Banking and Insurance Regulatory Commission has encouraged banks to delay repayments and interest due on loans for firms whose businesses have been heavily affected by the outbreak, and encouraged bigger risk tolerance in bank lending to small businesses.
The PBOC will play a leading role in the operation of the FSDC offices. The head of the central bank’s Shanghai office, Jin Penghui, is set to serve as chief coordinator of the agency in the financial centre.
S&P Global Ratings warned in a recent research report that the coronavirus could be a stress test on China’s banking sector, with commercial banks’ bad loan ratio rising to 6.0 per cent, more than triple the level at the end of last year.
“We fully understand that the [non-performing loan] ratio could rise a certain amount owing to the epidemic,” the banking regulator said in an online statement a week ago. “But the impact on the economy and finance should be short lived … There’s no reason for the bad loan ratio to rise significantly.”
Qu Qiang, a researcher with Renmin University’s international monetary institute, said loan exposure in the most affected sectors, such travel, catering and hospitality, is low and many businesses are now recovering as the outbreak is moving towards an end in China.
“Its impact has been larger on people’s livelihoods than on financial stability,” he said. “As the coordination mechanism suggests, the government has sufficient experience and tools to deal with potential financial problems.”
