Caixin
Dec 23, 2020 06:02 AM
ECONOMY

China Extends Virus Relief Measures to Support Small Business Credit

Pedestrians wearing protective masks walk past the People's Bank of China (PBOC) building in Beijing
Pedestrians wearing protective masks walk past the People's Bank of China (PBOC) building in Beijing

China will extend two virus relief measures that were set to expire by the end of this year to provide continued financing support to small and micro businesses, according to the country’s cabinet.

The policies to be extended will provide new loans or roll over maturing loans to small businesses to help them maintain stable recovery trajectories amid a changing internal and external environment, the State Council said at a Monday meeting chaired by Premier Li Keqiang. It didn’t specify how long will the policies be extended.

Wen Bin, chief analyst at Minsheng Bank, said the decision reflected policymakers’ efforts to maintain continuity and stability of the macroeconomic policies. Although China’s economy has rebounded from the pandemic since the second quarter, small businesses in some industries still need further financial support to consolidate recovery, Wen said.

The measures to be extended were issued in June by the central bank to provide direct capital support to businesses. In one program, the central bank promised to provide as much as 40 billion yuan ($6.1 billion) to encourage regional banks to roll over loans for small businesses with credit lines of less than 10 million yuan. The other program consists of a 400 billion yuan relending quota to buy unsecured loans extended to micro companies by qualified local banks.

By the end of September, a total of 469.5 billion yuan of micro business borrowings were rolled over under the programs, in addition to 264.6 billion yuan of new loan issuance, according to the central bank.

The cabinet’s decision echoed top policymakers’ pledge at a key policy meeting that concluded last week to maintain continuity in macroeconomic policies next year.

As one of the countries that moved early to bring the virus under control, China has shown steady recovery momentum since ending lockdowns. The world’s second-largest economy is expected to be the only major economy to expand in 2020, while the U.S. and Europe continue struggling with the pandemic.

But top leaders warned that China’s economy still faces uncertainties because of the pandemic and the external environment and that the foundation of the economic recovery is still not yet solid.

China has rolled out a series of efforts this year to boost market liquidity through short-term lending tools, required reserve ratio cuts, as well as relending and rediscount programs.

As the economy recovers, analysts said supportive policies will fade gradually next year. Economists at UBS Group and Nomura projected that the central government deficit will return to 3% in 2021, narrowing from this year’s unusually high 3.6%. The government may stop the issuance of special treasury bonds and reduce the quota of special-purpose bonds for local governments, they said.

Guo Yingzhe contributed to this story.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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