PBOC Fires “Three Arrows” to Drive Funds Towards Private Enterprise

The Chinese central bank has highlighted a trio of policy measures for driving funds towards private enterprise and helping to ease the financing difficulties experienced by small and micro-enterprises.

In an interview with state-owned media conducted on 6 November People’s Bank of China governor Yi Gang (易纲)  said that the central bank would launch effective measures to resolve the real financing difficulties faced by private enterprise and small and micro-enterprises.

Yi described three “arrows” to improve financing conditions and drive funds towards private enterprises as well as those parts of the Chinese economy where they’re most needed.

The first “arrow” is increases in lending to private enterprise, and in particular small and micro-enterprirses.

Yi said that since the start of the year PBOC had added 300 billion yuan in re-lending and re-discounting quotas, primarily directed at private enterprise and small and micro-enterprises.

“PBOC has used re-lending and re-discounting to support those banks [that] have insufficient deposits or whose loan-deposit ratios are too high or whose funds are insufficient for lending,” said Yi, pointing to a reduction in financing costs for small and micro-enterprise.

The second “arrow” is support for bond issuance by private enterprise, and the unveiling of support tools for private enterprise debt financing that act as a form of “insurance.”

“If defaults arise in relation to private enterprise bonds, but the principal and interest for your bonds can be compensated, then you can buy with confidence,” said Yi.

Yi Gang stressed that investors are responsible for paying for this “insurance,” and that it does not increase the burden on private companies.

“Once private enterprises are able to issue bonds they have cash coming in….banks are no longer pressing them to make repayments, and the stock market is also slightly more stable.”

China has already launched trials of private enterprise bond financing support tools, with three private enterprises including Rongsheng Holdings, Hongshi Group and Ningbo Fubang making use of them to raise 1.9 billion yuan in funds.

PBOC plans to further expand the scope of the trials, as well as work closely with the China Securities Regulatory Commission to formulate detailed plans to support the corporate bonds of private enterprise.

The third “arrow” outlined by Yi Gang is the research and launch of tools to support equity financing by private enterprise, with PBOC providing “initial guidance capital” to drive financial institutions to provide “stage-based equity financing support” to those private enterprises that are experiencing funding difficulties.

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