China to Cut Financing Costs and Boost Lending to Small Firms

(Bloomberg) -- Chinese policymakers will work to both lower the cost of loans for small and private companies and expand the amount of money that is lent to them, as the government looks to support an economic recovery.

• The central bank and other policymakers should quickly work on a system in which medium and small sized banks can put aside less money in reserves, according to a statement after the State Council meeting on Wednesday.

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• “Flexible” use will be made of monetary tools, including through increasing the relending and rediscounting quotas.
• Private companies should sell more bonds than in 2018 and financial institutions should also issue more bonds specifically to pay for lending to small firms.
• The State Council reiterated a previous request that the big five banks ensure 30 percent growth in outstanding loans to small companies and also lower the comprehensive cost of financing by 1 percentage point compared to last year.
• The central bank and government have added stimulus since the middle of last year to support growth, but have struggled to get that credit to small companies who need it. The new measures indicate that the unexpectedly strong growth in lending in the first three months of 2019 is still not going where the government wants.

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• The central bank has reduced the reserves banks have to hold five times since early 2018, partly to support smaller and private borrowers. That allows banks to increase the amount of money they can dole out to borrowers.
• The announcement comes just hours after China reported surprisingly strong output and growth data, which prompted some analysts to push back or tone down their calls for more stimulus.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Xiaoqing Pi in Beijing at xpi1@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net

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

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With assistance from Bloomberg