Caixin
Aug 19, 2020 04:56 AM
ECONOMY

China Tells Six Banks to Allocate Discount Loans to County-Level Governments

A demolition planning area in an urbanization construction project in Changzhou, Jiangsu province.
A demolition planning area in an urbanization construction project in Changzhou, Jiangsu province.

China’s top economic planner directed six state-owned or state-controlled banks to provide credit support to urbanization projects in county-level regions. The move is in line with Premier Li Keqiang’s call for distributing money directly into the hands of struggling local authorities.

The banks are state-owned China Development Bank, Agricultural Development Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China and China Construction Bank, and state-controlled joint-stock commercial bank China Everbright Bank. They were instructed to arrange credit lines of a certain scale every year to support county-level urbanization projects, particularly in weak areas, according to a notice issued Friday by the National Development and Reform Commission (NDRC).

To bolster the pandemic-ravaged economy, China has launched trillions of yuan of fiscal spending and government bond issuances. Central government funds are allocated to provincial governments, which then distribute them to local authorities. But sometimes, some funds meant for local governments were used for provincial government projects, leaving a smaller pool for county-level projects.

The loans will be medium to long-term loans, in principle for no more than 20 years. The banks will extend the loans at discount interest rates based on prime rates.

The notice defines the qualified projects as 120 demonstration areas for new types of urbanization construction in county-level regions, as well as large towns with more than 100,000 permanent residents that don’t house the county-level government.

The key areas of support include 5G wireless networks, internet of things projects, smart manufacturing facilities, supply chain digital platforms, shantytown redevelopment, public transportation, vocational skills training facilities, warehouses, and cultural and tourism facilities.

The projects have to meet conditions that include generating stable operating cash flow or other reliable sources of debt repayment funds, and covering the loan principal and interest from future operating income or other income of the borrower.

For projects with strong comprehensive strength, large loan demand and long investment return cycles, the six banks can provide coordinated support through syndicated loans, the notice said. In addition to bank loans, local governments will also use fiscal funds or special-purpose bonds to support such projects.

At an executive meeting of the State Council, China’s cabinet, Li stressed efforts to ensure that new fiscal funds directly benefit businesses and people to consolidate the foundation of the country's restorative growth.

In June, the premier mandated the establishment of an effective and secured special transfer payment mechanism that all new funds go straight to prefecture and county-level governments as early as possible.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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