China Pledges Cheap Credit and Tax Cuts to Aid Small Firms

(Bloomberg) --

The Chinese government announced a raft of measures including cheap credit and targeted tax cuts to small firms and the private sector, the latest move to support the virus-weakened economy.

The People’s Bank of China will offer 500 billion yuan ($71.2 billion) of relending and rediscounting funding to commercial lenders for loans to small companies and the agricultural sector, according to a State Council meeting on Tuesday, Central China Television reported. The interest rate of the funding will be lowered by 25 basis points, and local commercial lenders can apply for an additional relending quota if needed by end of June, it said.

The government will also waive value-added taxes for small firms in Hubei from March to May, and lower the tax rate to 1% from 3% for small firms in the rest of the country, it reported.

The announcement comes on top of targeted easing measures in recent weeks that aim at helping small and private enterprises avoid a credit crunch as the coronavirus outbreak worsens a slowing economy. The private sector, which accounts more than 60% of gross domestic product and 80% of employment, was hardest hit during the crisis. Investors are also expecting more monetary stimulus including cutting some banks’ reserve ratios and the benchmark deposit rate.

The PBOC provides loans to banks at a cheaper price via the so-called re-lending program, a monetary tool used to encourage lending to the weaker parts of the economy, or entities with poorer credit.

Measures announced at Tuesday’s meeting also include:

• Rolling over maturing loans and exempting penalties on interest payment delays for firms in Hubei or qualified small firms in the rest of China, until the end of June
• Encouraging state-owned banks to increase SME lending by more than 30% from last year; commercial banks to lower interest rates for SME lending from the 2019 level
• Policy banks to offer 350 billion yuan of special credit quotas to private and small firms
• Lowering electricity prices for high energy-consuming sectors
• Expanding postgraduate enrollment and recruitment for local medical care and social service posts

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Gregory Turk

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With assistance from Bloomberg