China’s newly unveiled financial measures to ease credit strain on small- and micro-sized businesses (SMBs) are necessary for their development, experts said.
The country will roll out a series of measures to make financing more accessible and affordable for SMBs to reduce costs in the economy, the State Council decided at an executive meeting chaired by Premier Li Keqiang Wednesday.
China will use targeted cuts in banks’ reserve requirement ratios (RRR) and other policy tools to boost credit support for small firms and keep economic growth steady, State radio on Wednesday quoted a cabinet meeting as saying.
“We will use targeted RRR cuts and other monetary policy tools to enhance the ability to provide credit for small and micro firms,” State radio quoted the cabinet as saying.
The cabinet pledged measures, such as raising rediscount quotas and cutting relending rates, to channel more loans to small firms and reduce their funding costs, it added.
From September 1 until the end of 2020, interest income from credit of up to 5 million yuan ($772,546.78) for eligible small firms and households will be exempt from value-added tax, it said.
Loans for small firms with a credit line of 5 million yuan or less will be included in collateral for the central bank’s medium-term lending facility (MLF), it said.
Dong Ximiao, senior researcher at Renmin University’s Chongyang Institute for Financial Studies, said the SMBs need tailored policy support to develop, and financial institutions should continue to enhance services for them.
It was the third time for the State Council to discuss lowering of financing costs for small and micro businesses during its weekly executive meeting since March.
In China, SMBs accounted for 80 percent of employment, some 70 percent of patent ownership, over 60 percent of GDP and more than 50 percent of tax revenue, China’s central bank governor Yi Gang said last week.
“The tools are designed to ensure that SMBs have enough accessible credit, given a tightening total supply,” said Zeng Gang, a financial researcher with the Chinese Academy of Social Sciences.
China will stick to its prudent and neutral monetary policy to keep liquidity stable, so as to keep economic growth in a reasonable range, the cabinet added. The country’s flexible monetary policies allow commercial banks to lower liquidity costs and encourage lenders to offer SMBs financial services, Dong said.
From Global Times