Beijing Proposes Five Measures to Expand Financial Inclusion for Small Businesses


The State Council has outlined a raft of five measures for expanding the supply of financing to China’s small and micro-enterprises.

On 20 June China’s State Council convened a meeting to discuss measures for addressing the problem of difficult and expensive financing for small and micro-enterprises, as well as efforts to further reduce financing costs for the country’s real economy.

The State Council outlined a total of five measures for resolving the financing difficulties of small and micro-enterprises in China, chief amongst them a targeted reduction in the required reserve ratio of Chinese banks, following the implementation of a cut in April that focused on modest-sized lenders which are more inclined to extend credit to small businesses.

In addition to the targeted reserve cut, other measures outlined by the State Council include:

  •  Expanding refinancing and rediscounting quotas and reducing refinancing rates;
  • Raising the VAT-exempt ceiling for interest on loans;
  • Reducing additional costs for financing.
  • Permitting the inclusion of loans of under 5 million yuan to small and micro-enterprises within the scope of accepted collateral for the medium-term lending facilities (MLF) used by the People’s Bank of China for its open-market operations. .

Liao Zhiming (廖志明), chief banking sector analyst for Tianfeng Securities, said to Securities Daily that the State Council expects these five measures to serve as  long-term measures to support financing for small and micro-enterprises.

Liao said that regulators are well aware that any reduction in the reserve ratio must be accompanied by the proper incentives to ensure that funds released are effectively channelled towards small and micro-enterprises.

Liao said that an increase in the VAT-exempt ceiling to 5 million yuan from 1 million yuan is  commensurate with directly expanding the overall rate spread for small and micro-enterprise loans, and could expedite the release of 1 million to 5 million in lending.

Increases in “small and micro-enterprise” and “three agriculture” refinancing and re-discounting quotas in tandem with reductions in rates will serve to greatly reduce costs on the liabilities side for loans to small businesses, especially when combined with targeted reserve ratio reductions.

Liao points out that one of the chief reasons that Chinese banks have proven reluctant to loan to small and micro-enterprises has been comparatively high risk levels.

In order to deal with this issue Beijing established the National Financial Guarantee Fund (国家融资担保基金) in March 2018, which Liao says will greatly reduce the risk associated with small and micro-enterprise lending.

At the start of June the Chinese central bank also expanded the scope of acceptable collateral for MLF to include “high quality” small and micro-enterprise loans and environmental loans, serving to expand the supply of credit for small businesses.