Caixin
Sep 02, 2021 04:17 AM
FINANCE

China to Expand Lending to Small Businesses and Poor Students

What’s new: China’s central bank will add 300 billion yuan ($46.4 billion) to relending quotas to help banks offer loans to small and medium-sized companies and self-employed individuals.

The move is part of the central government’s broader measures to keep market entities and employment stable and support economic growth, according to a State Council meeting chaired by Premier Li Keqiang.

The cabinet also decided to step up aid to students from poor families through a national student loan policy. Starting in the fall semester, the maximum annual loan amount for undergraduate students will be increased 50% from 8,000 yuan to 12,000 yuan and for graduate students 33.3% from 12,000 yuan to 16,000 yuan. Interest on the loans will be fully subsidized by the government while students are in school, and banks offering student loans will get compensation.

The background: China’s recovery is showing signs of losing momentum, and analysts say they are concerned that recent measures to counter local outbreaks of the delta variant of the coronavirus will deal another blow to economic activity, especially offline spending as consumers avoid going to shops.

Nomura International (Hong Kong) Ltd. lowered its forecasts for China’s year-on-year GDP growth to 5.1% from 6.4% for the third quarter and to 4.4% from 5.3% for the fourth. Goldman Sachs Group Inc. cut its full-year 2021 growth projection to 8.3% from 8.6%.

Relending and rediscount are two channels through which the central bank injects liquidity into the financial system. The relending program targets small urban commercial banks, rural commercial banks, rural cooperative banks and village banks that must issue a certain minimum proportion of loans to small and micro enterprises.

Under the nationwide relending program, banks can borrow central bank funds at an annual interest rate of 2.25%, lower than the key policy rate of 2.95%, in a one-year medium lending facility.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full story in Chinese, click here.

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

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