A new study points to exorbitant financing costs for actors in China’s real economy.
The China Social Financing Cost Index (中国社会融资成本指数) prepared by Tsinghua University in conjunction with financial news organisation Caijing was released Beijing on 1 February.
“Social financing” in the Chinese context typically refers to borrowing by non-state entities.
The index indicates that the average financing cost for Chinese companies currently stands at 7.6%, with the average bank loan financing cost at 6.6%, and the average financing cost for bank’s acceptance bills at 5.19%.
For corporate bonds the average financing cost is 6.68%, while the average cost for trust financing, financial leasing and factoring are 9.25%, 10.7% and 12.1% respectively.
Micro-loan companies and Internet lending platforms charge the most for funds, with average financing costs of 21.9% and 21.0% respectively.
The average financing cost for listed companies via equity pledged lending is 7.24%.
Bank loans currently account for 54.84%of enterprise social financing, while corporate bonds comprise 16.5%, bank’s acceptance bills 11.26%, trust financing 7.66% and financial leasing 3.95%.
Factoring accounts for 0.44%, micro-loan companies 0.87%, online lending 1.1% and equity pledged financing 3.39%.
Gao Liankui (高连奎) who lead the study said that the average social financing cost of 7.6% only represents interest rate costs, and that when transaction fees, evaluation fees and other costs are included, China’s average social financing cost rises to in excess of 8%, which is a huge burden of companies.
Gao further points out that most small and medium-sized enterprises in China face financing costs of over 10%, given that reading for average social financing cost is pulled lower by bank loans.
Given that there isn’t much room for further tax cuts, Gao said that he government should focus more on reducing financing costs to drive economic efficiency and growth.
“China’s total social financing balance was 171.23 trillion yuan as of September 2017,” said Gao.
“When social financing which wasn’t caught by statistics is added, a conservative estimate of China’s total social financing would be around 200 trillion yuan.
“If the interest rates for financing can be cut slightly, this would reduce the cost burden on companies by 2 trillion yuan, and would have extremely pronounced effects.”