Lending boost for small companies

Officials and industry insiders say China's central bank policies and tools are helping companies to gain easier access to credit.

China’s central bank has adopted comprehensive monetary policies and tools to boost lending to micro and small companies for the past year and privately owned businesses are getting more access to credit, according to officials and industry insiders.

The People’s Bank of China has stepped up efforts to increase loan growth to small companies, said Luo Yanfeng, deputy director of the general office at the PBOC.

It was reported that the central bank has now delivered six reserve requirement ratio (RRR) cuts since early 2018 ,with a recent targeted RRR cut for county-level rural commercial banks being announced in May, which was aimed to use structural tools to unleash long-term capital of about 280 billion yuan (US$40.4 billion) to help cash-strained private and small enterprises.

The government also encouraged more corporate and financial bond issuance to support the development of small and medium-sized firms, Luo noted. Data from the central bank showed that in 2018, up to 59 private companies issued 92 corporate bonds, raising a total of 42.3 billion yuan.

Thanks to these efforts, lending to SMEs has surged and as many as 23.1 million small companies have received loans at a lower cost, the PBOC official added.

Huang Xiangqian, CEO of Shanghai-based Xinyan AI Technology, said the difficulty in financing small and micro enterprises lies in the fact that they do not have fixed assets as collateral or financial statements that meet the audit requirements for evaluation. 

The financial technology startup has facilitated banks’ pre-loan credit evaluation by conducting modeling analysis on the daily operating data of small and micro enterprises as well as the personal consumption data of their shareholders and thus helped them reduce operational risks relevant to SMEs.

Data from the China Banking and Insurance Regulatory Commission indicated that by the end of first quarter, the outstanding inclusive loans to SMEs had reached 34.8 trillion yuan, with around a third granted to micro and small enterprises.

From January to March, banks’ lending interest rate stood at an average of 6.87 percent, down by 0.52 percentage points compared with the whole of 2018.

The rate was 4.76 percent on average for the top five state-owned commercial lenders during the same period, according to Qi Xiang, deputy director of the general office at the commission.

He noted that although indirect financing from banks remains the main channel for domestic companies, reducing the funding cost is a project that requires joint efforts from different parties, including banks, insurance companies, taxation authorities and technology firms.

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