China Turns Up Full Power to Help Small Businesses Get Financing
With abundant market liquidity and policy support, the issuance of small and micro financial bonds by Chinese banks surged 330% to 275.28 billion yuan ($38.74 billion) in the first five months of 2020.
The largest issuers include Industrial Bank Co. Ltd., Bank of Beijing Co. Ltd., Ping An Bank Co. Ltd. and China Citic Bank, all of which issued such bonds for the first time.
The surge of issuance was spurred by a series of policies to help small businesses weather the pandemic. The State Council said at a cabinet meeting March 31 that the government would support financial institutions in the issuance of 300 billion yuan of financial bonds targeting small enterprises.
Funds raised from such bonds are exclusively used for lending to small and micro businesses. Medium to small-sized banks are usually the main issuers of such bonds. Due to the high risks of microloans, the interest rates of small and micro financial bonds used to be relatively high.
In addition to policy support, abundant market liquidity has also brought down the cost of such bonds, a banker told Caixin.
In the first five months, the Agricultural Bank of China issued 20 billion yuan of small and micro financial bonds at an interest rate of 1.99%, and Bank of China issued 10 billion yuan of bonds at 2.65%, compared with 3.25% in a December issuance.
Even though the funds raised will go to small and micro businesses, investors in the bonds mainly consider the credit status of the issuers, a person at a large brokerage said.
In addition to bank loans, China is exploring broader channels to help small and micro businesses obtain financing. The National Association of Financial Market Institutional Investors (NAFMII), a central bank-backed body that oversees the interbank market, launched a pilot program to issue asset-backed commercial paper (ABCP), a short-term investment product sold by banks and backed by companies’ physical assets.
As of Tuesday, the first batch of ABCPs amounted to 3.3 billion yuan, helping to provide financing for about 270 small and micro businesses in the supply-chain industry.
For those medium, small and micro enterprises that have difficulty raising funds by issuing bonds directly, ABCPs can help them get financing by selling parts of their future expected receivable payments, thus greatly lowering the financing threshold and making the funds directly accessible to the real economy, the NAFMII said.
As many small companies have difficulty lining up financing due to lack of collateral or guarantees, regulators are also considering amending laws to remove institutional barriers.
In a guideline jointly issued Monday by the central bank, the China Banking and Insurance Regulatory Commission, the National Development and Reform Commission and several other ministries, regulators proposed to amend the country’s commercial bank law to revise the provision requiring that commercial bank loans have a guarantee.
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