Coronavirus: China urged to ‘think outside the box’ to help businesses struggling for survival

China’s central bank provided nearly 4 trillion yuan (US$565 billion) of additional funds to spur new lending in the first quarter

But small private sector businesses are still struggling to obtain funds, with many believing direct payments are still a long shot due to the immense size and complexity

4-MIN READ4-MIN

In response to the outbreak, Beijing has so far shied away from the massive economic stimulus efforts it enacted after the global financial crisis in 2008, opting for more targeted support. Photo: Bloomberg

Published: 7:00pm, 24 Apr 2020Updated: 10:57pm, 24 Apr 2020

There are growing calls for China to provide direct financial support to small private sector businesses as many are struggling for survival due to the economic damage caused by the coronavirus outbreak.

The Chinese government said at the end of March that it was deliberating on “a package of macroeconomic measures” to support growth, even before it announced that the economy contracted 6.8 per cent in the first quarter of 2020, the first decline since quarterly records began in 1992.

But it is still seen as a long shot that China will grant direct payments to companies given the huge cost of such a programme and the complexity of administering it.

In response to the outbreak, Beijing has so far shied away from the massive economic stimulus efforts it enacted after the global financial crisis in 2008, opting for more targeted support.

The primary task is to kick-start economic operations and help as many companies as possible survive … but the current [government] countermeasures are relatively rigid and insufficient

Liu Shengjun

The government’s main strategy to date has been to provide large amount of cheap money to local banks to loan out to small businesses. However, evidence suggests that this method is not working, since small banks remain reluctant to lend to small private businesses given they have little or no collateral and are at higher risk of default.

In the first quarter alone, China’s central bank injected more than 2 trillion yuan (US$283 billion) into the interbank market as well as providing an additional 1.8 trillion yuan to banks to spur new lending, while trimming corporate taxes and social security contributions by hundreds of billions of yuan. But the government relief efforts so far have simply not been enough, or been properly targeted, some analysts said.

“The primary task is to kick-start economic operations and help as many companies as possible survive … but the current [government] countermeasures are relatively rigid and insufficient,” said Liu Shengjun, head of the Shanghai-based research firm, the China Financial Reform Institute.