Coronavirus: China’s credit push struggles as banks weigh risks of lending to cash-strapped small businesses

Despite efforts by Beijing, banks have little incentive to lend to small businesses struggling with the coronavirus due to lack of collateral and higher default risks

Many small firms at risk of closing are being forced to turn to shadow bankers for loans at much higher interest rates than regular lenders

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The People's Bank of China (PBOC) has implemented a number of initiatives to try to boost funding for small businesses through regional banks. Illustration: Perry Tse

Published: 12:00pm, 21 Apr 2020Updated: 2:04pm, 21 Apr 2020

These are anxious times for Bob Cai, who operates a small travel company specialising in personalised tour packages from his home in China’s Yangtze River Delta.

Heavily indebted after expanding his business to capture a slice of China’s middle class tourism boom in recent years, his company is now facing ruin after the coronavirus pandemic ground international travel to a halt.

Cai desperately needs more credit to keep his company afloat, but he must repay the outstanding 2 million yuan (US$283,000) balance on an existing loan by July before his bank will even consider lending to him again.

“As soon as I think about it, I can’t sleep at night,” said Cai, who has already put up his own property as collateral.

Cai has found himself in a position that is becoming all too familiar to scores of other cash-strapped small businesses in China.

As the coronavirus pandemic has hurt demand for their goods and services, many are desperate for new loans from the nation’s small and rural banks to survive.