China increases support for small businesses with monetary policy instruments

BEIJING -- China's central bank will beef up financial support for small and micro enterprises via new monetary policy instruments.

This comes amid the country's efforts to stimulate the real economy, according to two circulars jointly released by the People's Bank of China (PBOC) and four other regulators.

Starting on Monday, the PBOC will use 400-billion-yuan ($56.2 billion) of a special re-lending quota to purchase 40 percent of inclusive loans to small and micro businesses issued by local banks from March 1 to December 31.

It will lower the debt costs of banks directly and help with replenishing liquidity, said Li Qilin, chief economist of Yuekai Securities, adding that small firms can then get more credit support.

As part of the loan extension support tools, banking institutions are encouraged to enrich credit products and lower the credit loan interest rate, according to one of the circulars.

The PBOC said that small businesses are allowed to apply for deferring their inclusive loan repayment maturing by end-2020 to March 31, 2021, with penalty payments exempted.

"Compared with previous policy tools, the newly-developed instruments are more market-oriented, inclusive and direct," the central bank said.

The new policy instruments can help small and micro enterprises to maintain cash flow, gain easier access to loans and lower the financing cost, according to the PBOC.

As the country works to develop new monetary policy instruments that can directly stimulate the real economy, it is crucial to take steps to ensure enterprises can secure loans more easily and promote steady reduction of interest rates, said this year's government work report.