On 28 September the People’s Bank of China (PBOC) announced that it had finalised the relevant details for its equipment upgrade and improvement reloan initiative, in a bid to provide greater support to the manufacturing sector and small businesses in China.
According to PBOC the reloans will provide specialist support to Chinese financial institutions to provide equipment upgrade and improvement loans at rates of no more than 3.2% to the manufacturing sector, the social services sector, micro, small and medium-sized enterprises and individual industrial and commercial registrants.
The reloan initiative covers a total of ten areas, including education, health, cultural tourism and fitness, electric charging posts, municipal underground infrastructure, new-model infrastructure, industry digitisation, emissions reductions and home appliance recycling.
The quota for the reloan initiative is currently set at above 200 billion yuan, with a rate of 1.75%, a term of 1 year, and two potential extensions of one year.
Potential recipients of the reloan initiative include a total of 21 lenders, encompassing policy banks, state-owned commercial banks, the Postal Savings Bank of China and joint-stock banks.
PBOC said that it would provide 100% loan fund support to financial institution that satisfy requirements.
“Driving economic and social development in weak linkages and implementing equipment upgrades and improvements is of benefit to expanding demand in the manufacturing sector market, driving the recovery of consumption to become a key driver of the economy, and strengthening development impetus,” said a PBOC official.
“Specialist reloans in tandem with central government fiscal subsidies are expected to jointly drive both the supply and demand sides for loans, supporting enterprises to upgrade and improve equipment, as well as driving growth in lending in related areas.”
Wen Bin (温彬), chief economist with Minsheng Bank, said that the reloans provided Chinese banks with strong incentives to extend lending in areas highlighted by financial regulators.
“For commercial banks to apply with PBOC for reloans of 100% of the loan principle at a rate of 1.75%, then extend loans at a rate of 3.2%, provides an interest spread of approximately 145 basis points,” Wen said to state-owned media.
“This will help spur the activeness of commercial banks in extending loans.”