China Targets 30% Increase in Loans to Small Firms This Year

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Chinese regulators ordered state-run banks to boost inclusive finance loans to small firms by 30 percent this year, among a slew of measures to meet President Xi Jinping’s policy shift to prioritize growth.

Key Insights

  • Policy makers in November had backtracked from setting explicit targets for credit to private firms after bank stocks slumped and lenders struggled to comply
  • Efforts to spur credit have since gained urgency after economic growth in 2018 fell to the lowest since 1990
  • It may be tough for banks to fund private companies as they are already “blowing up their balance sheets to support very under-performing local state companies,” according to Nicholas Lardy of the Peterson Institute for International Economics in Washington

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  • All commercial banks will need to set targets for lending to private firms by the end of March, according to a notice from the China Banking and Insurance Regulatory Commission Monday
    • CBIRC said it will clarify “loans to private enterprises for statistical purposes” by the end of February
  • Lenders asked to offer private firms same lending rates as state-owned companies; banks and insurers asked to buy private companies’ bonds

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