Coronavirus: China grants banks extra funding to spur loans to hard hit small businesses

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    Source : CNBC

    Beijing is racing against time to help small Chinese businesses hard hit by the novel coronavirus epidemic, as a large proportion of remain shut but still have a long list of bills to pay.Many small and medium-sized enterprises (SMEs) have reported they have only a few months of cash reserves left to weather the epidemic-induced economic slowdown, and unless business returns to normal soon, or they receive government aid, many are at risk of failing.

    This could result in a sharp increase in unemployment, since SMEs account for a majority of jobs in the world’s second largest economy. Rising unemployment would pose a risk to social stability, a threat Beijing is keen to avoid.Data released by the industry ministry on Tuesday showed that only 30 per cent of small businesses had reopened, well below the operating rates of above 60 per cent for big industrial enterprises, whose support the government had prioritised.

    In the latest of a series of moves to bolster small businesses, the State Council, the government cabinet, announced after Tuesday’s executive meeting that it would grant banks another 500 billion yuan (US$71.1 billion) for targeted lending, on top of the 300 billion yuan in additional funds released by the government in early February for epidemic relief.

    To help spur borrowing, the official interest rate set by the central bank for commercial lenders extending credit to these rural areas, farms and agriculture firms, as well as other small businesses, was cut by a quarter percentage point to 2.5 per cent. Regional banks that extend such loans at a rate no higher than a half percentage point above the benchmark loan prime rate will be eligible to apply for the new government funding.

    The cabinet encouraged private commercial banks to postpone interest payments on loans to small businesses experiencing cash flow difficulties until the end of June, and defer the repayments of principal for the time being.

    The State Council also ordered large state-owned banks to increase lending to small businesses by at least 30 per cent in the first half of 2020. China’s three government-run policy banks were also told to lend 350 billion yuan (US$49.7 billion) to small businesses at preferential rates.

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