PBOC to Support Equity Financing by Private Enterprise with “Initial Guidance Capital”

The head of the Chinese central bank has flagged further measures to support equity financing by private enterprise as well as combat risk in relation to the use of equity as collateral.

People’s Bank of China governor Yi Gang (易纲) said in an interview with Economic Daily (经济日报) that the central bank is currently researching the establishment of support tools for equity financing by private enterprise.

PBOC is pushing for institutions that comply with regulations including private fund managers, securities companies, and the financial asset investment companies of commercial banks to launch support tools for equity financing by private enterprise.

PBOC will provide “initial guidance capital” to drive financial institutions and social capital to participate in equity financing, and provide “stage-based equity financing support” to those private enterprises that meet with funding difficulties.

Yi Gang also said that the relevant government departments were currently pursuing coordinated measures to resolve prevailing risk in relation to the use of equity as collateral by private enterprise.

Gui Haoming (桂浩明), chief market expert with Shenwan Hongyuan, said to National Business Daily that this direct intervention by PBOC in the form of the establishment of funds and the purchase of equity to increase capital for private enterprise is intended to ease the difficulty that such companies face in obtaining loans.

Pan Gongsheng (潘功胜), vice-head of PBOC, recently said that certain private enterprises whose businesses were functioning normally had met with financing difficulties as a result of a “herd effect” on financial markets and a decline in risk preferences.

Pan said that under such circumstances relying upon market forces to provide self-correction would be unlikely to produce results in the short-term, and that it would thus be necessary to provide guidance to the irrational expectations and conduct of financial markets.

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