Economic Watch: China boosts targeted financing support for private sector

Source: Xinhua| 2019-06-01 22:18:45|Editor: zh
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BEIJING, June 1 (Xinhua) -- Qu Ronghua, general manager of Taizhou Infinite New Energy Technology Co. Ltd (Zhejiang), never expected that he could use patents as collateral for a bank loan.

Within eight days, his company secured 1 million yuan (about 145,000 U.S. dollars) of loan from a local commercial bank, saving his factory which partially laid idle due to insufficient cash flow.

"Now we can focus our attention on product research and development," Qu said.

Qu's unexpected "fortune" is now becoming increasingly common among cash-strained private businesses as the government steps up efforts to channel more money to the sector.

Since China's reforms and opening up, private businesses have assumed a bigger role in driving growth. The sector now contributes more than 60 percent of China's GDP and provides over 80 percent of jobs.

But in recent years the sector is facing increasing pressures from economic headwinds, higher labor and material costs, as well as financing difficulties as banks and financial institutions have a habit of leaning toward state-backed borrowers due to risk concerns.

Alarmed by the trend, Chinese policymakers have made multi-pronged policy moves.

In a guideline released in April, China's central authorities pledged more measures on SMEs financing difficulties, including the creation of more financing channels and encouraging small firms to seek funding on the "new third board."

China adopted a targeted cut in reserve requirement ratio (RRR) for some small and medium-sized banks starting from May 15.

Responding to the policy call, financial institutions at lower levels across the country have introduced innovative financial services to help small and micro businesses.

China Construction Bank's branch in Ningxia Hui Autonomous Region rolled out a new inclusive finance service to lend to small enterprises that have existed for two years or more if they pay their electricity bills on time.

As Chinese private businesses are seeking opportunities in technology innovation and services, financial institutions should abandon their over-reliance on land and property as collateral for loans and opt for more intelligent risk control solutions, noted Dong Ximiao, deputy dean of the Chongyang Institute for Financial Studies at Renmin University.

The slew of policies are producing the desired results. Data from the central bank showed outstanding loans to small and micro firms grew the fastest among all sectors of inclusive financial credit, going up 19.1 percent to 10.05 trillion yuan by the end of the first quarter.

To enable the private sector to better play a role in spurring growth, more efforts are needed to foster a financial service system that can cover different development stages with diverse funding tools, analysts have said.

The Chinese economy expanded by a better-than-expected 6.4 percent year-on-year in the first quarter.