State Council Flags More Targeted Reserve Ratio Cuts to Improve Financial Inclusion

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The Chinese central government has indicated that further targeted cuts to the required reserve ratio lie ahead as part of efforts to facilitate the extension of credit to small businesses.

The offices of the State Council and the Chinese Communist Party recently released the “Guidance Opinions Concerning Expediting the Healthy Development of Small and Medium-sized Enterprises” (关于促进中小企业健康发展的指导意见).

The Opinions outline a range of measures to support Chinese small business, including “resolving the problem of financing being difficult and expensive, improving fiscal and tax support policies and raising innovative growth capability.”

Beijing will seek to improve financing for SME’s by “further implementing financially inclusive policies for targeted reductions to required reserve ratios,” as well as “expanding the vigour of re-discounting support for small and micro-enterprises” and providing “targeted support for the discounting of the small sum bills of under 5 million yuan for small and micro-enterprises.”

The Chinese central government will also expand the scope of re-lending support policies to apply to qualified small and medium-sized banks, including “new-model internet banks,” while loans to small and micro-enterprises for whom credit is at 10 million yuan or less will be included within the scope of acceptable collateral for medium-term lending facilities (MLF).

The Opinions outline other measures to “actively expand financing channels,” including further improvements to bond issuance mechanisms and instruments to support bond financing by private enterprise.

Beijing will use multiple measures including the sale of credit risk mitigation warrants (CRMW) and the provision of credit enhancement services to support the rational bond financing needs of private enterprises that are operating normally yet have met with temporary liquidity difficulties.

The Opinions also flag further fiscal and tax support policies for SME’s and improved government procurement policies in support of SME’s.

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