Central Bank Steps Up Financial Backing for Small Business

China’s central bank Monday unveiled measures to further increase financing availability to small enterprises in the government’s latest move to support the private sector.

The measures include adding 150 billion yuan ($21.6 billion) of relending and rediscount quotas targeting the financing needs of micro and small businesses. The new quotas come on top of another 150 billion yuan of similar quotas that were issued in June.

The policy is tightly targeted to encourage financial institutions to expand the availability of credit to small and micro enterprises, the People’s Bank of China said in a statement (link in Chinese).

Financial institutions that meet the regulatory requirements on capital adequacy, macro prudence and business compliance can apply to local central bank offices for the relending and rediscount quotas if they have a high portion of loans to small and private enterprises, the central bank said.

In a separate statement (link in Chinese), the central bank said it will also set up policy instruments to support bond financing for private businesses, introducing risk mitigation tools, credit guarantees and other market measures to expand financing access for high-quality private companies.

The central bank “will actively use various credit policy tools to promote bond market innovation, pushing the financial sector to better serve the real economy and improve financing availability for private companies,” the central bank said.

Chinese authorities have taken repeated steps to enhance financial backing to the private sector amid rising concerns that a long-running liquidity-tightening campaign is weighing on business, especially small companies that have long struggled with limited access to funding compared with state-backed rivals.

During the weekend, President Xi Jinping vowed to offer “unwavering support” to the country’s private sector, a key pillar of China’s economy, following a growing chorus of pledges made by senior officials to restore investor confidence in the country’s economic outlook. Growing worries over a deepening trade war with the U.S. and weakening domestic activity have sparked a stock-market selloff.

In a recent interview with state media, Vice Premier Liu He said that those who do not support the development of private enterprises “must be resolutely corrected.”

“Supporting the development of private enterprises is to support the development of the entire national economy,” Liu said.

China’s gross domestic product rose 6.5% in the July-September quarter, the weakest growth since the first quarter of 2009, according to data released by the National Bureau of Statistics (NBS).

Financial regulators have urged banks to lend more to businesses, especially the private sector, to bolster the economy.

The central bank has cut the reserve requirement ratio for most commercial banks four times this year. The latest reduction, which took effect last week, released more than $100 billion of additional liquidity into the banking system.

In June, the central bank said it would expand the tax exemption for financial institutions’ interest income from loans to eligible small borrowers. It would also adjust the macro-prudential assessment framework to give more weight to small business loans.

The central bank’s Monday measures followed a State Council meeting, chaired by Premier Li Keqiang, calling for greater financial backing to businesses. The cabinet meeting unveiled plans including reducing the tax burden and easing restriction on private and foreign investments by the end of March to boost business activities.

Contact reporter Han Wei (weihan@caixin.com)