Monetary policy to ease funding troubles for small firms

Chinese monetary policy will be more flexible and effective in channeling funds into the real economy, especially for small and micro-sized enterprises, in order to stabilize economic growth, central bank officials said at a news conference on Tuesday.

Monetary policy will strike a better balance between stable growth and risk management, and encourage financial institutions to inject funds into targeted areas, said Zhu Hexin, the newly appointed vice-governor of the People's Bank of China, the central bank.

Zhu pledged to keep liquidity at a reasonable and ample level, but without strong policy stimulus.

The tightened regulatory framework will not constrain credit growth for financial institutions, and their adequate capital reserves should satisfy financing needs and the real economy, he said.

This year, the central bank has so far injected about 2.4 trillion yuan ($381 billion) into the financial sector through three reserve requirement ratio cuts and an open market operation.

During the first seven months, yuan loans rose by 10.48 trillion yuan, up 1.69 trillion yuan compared with the same period last year, the central bank said.

The ongoing structural deleveraging process, or a campaign to ease debt burden in targeted areas, will not stop, said Ji Zhihong, head of the central bank's financial markets department. He disclosed the country's overall debt-to-GDP level at the same news conference to be around 248.9 percent as of the end of June.

"The deleveraging environment should be kept stable. In the short term, the policy needs to focus on stabilizing market sentiment," said a research note from think tank China Finance 40 Forum.

Diversified policy tools, including lower interest rates, cutting the reserve ratio, expanding the scale of collateral and monetizing debt, could all be used flexibly to satisfy the real economy's financing needs, according to the think tank.

Vice-Premier Liu He addressed the first conference held by the State Council leading group on promoting the development of small and medium-sized enterprises on Monday, according to a statement on the State Council website.

Given the important role played by SMEs, the conference called for improving capital markets and broadening direct financing channels to allow SMEs to meet their funding needs, said the statement.

It also encouraged favorable fiscal and taxation policies for SMEs, such as tax cuts and financing assurance.

In terms of foreign exchange policy, central bank officials reiterated that they would let the market play a decisive role in the renminbi exchange rate, and the rate will not be used as a tool to deal with trade frictions.