China Ramps Up Aid to Small Firms Hurt by Economic Slowdown

China is beefing up financial support to small businesses to help them cope with a sharply slowing economy and soaring input costs.

The State Council, China’s cabinet, released three documents in the past several days, outlining measures to help small and medium-sized enterprises weather the downturn: from encouraging local governments to roll out discounts for power usage to organizing internet companies to provide cloud and digital services to SMEs.

Government officials detailed those plans at a briefing in Beijing Tuesday, along with a list of economic challenges faced by businesses.

“SMEs face many problems and difficulties due to the complicated domestic and overseas situation,” Xu Xiaolan, vice minister of Industry and Information Technology, said at the briefing. She highlighted factors such as elevated raw material costs, lack of orders, high wages and difficulty in hiring, problems in getting financing and payments, high transportation costs, sporadic virus outbreaks and electricity shortages.

Those factors have affected small businesses’ operations, she said, noting that the profits of industrial SMEs expanded just 3.6% in September from a year earlier. This refers to small companies with revenue of 20 million yuan ($3.1 million) or more.

Small businesses contributed over 60% of China’s gross domestic product and more than 80% of jobs, central bank Governor Yi Gang said in 2018. Over 99% of China’s 46 million enterprises are small firms, according to Xu. who added that those in the industrial sector employed 50.1 million workers, accounting for 68% of overall employment in the sector.

The situation of manufacturing SMEs declined further in November, according to a regular survey by Standard Chartered Plc of more than 500 firms. The current performance index for those firms dropped to a nine-month low, even as the broader index improved.

Top policy makers have highlighted the need for extra support for small businesses in several speeches recently, suggesting a more concerted effort to help the sector. Premier Li Keqiang said Monday the economy faces “new downward pressure” and the focus of local governments’ work should be on supporting small firms. Governor Yi said last week the People’s Bank of China will keep its focus on SMEs and green finance.

Several steps have already been taken in recent months, such as allowing smaller manufacturing firms to delay tax payments in the fourth quarter and providing 300 billion yuan ($47 billion) of low-cost funding to banks for lending to SMEs.

At the briefing Tuesday, Zou Lan, head of the PBOC’s financial market department, said outstanding loans to small firms through an inclusive finance program jumped 26.7% to 18.6 trillion yuan from a year ago by the end of October. The weighted average rate of such loans granted in October stood at 4.94%, down 0.14 percentage point from December, he said.

More details on the PBOC’s measures to help SMEs, according to Zou:

  • The central bank will encourage financial institutions to offer discounted interest rates for loans to major emission-cutting projects
  • It will guide financial institutions to satisfy reasonable financing needs of qualified coal producers and coal-fired power plants
  • The PBOC will ask lenders to allow higher risk tolerance in long-term loans to manufacturing businesses
  • The PBOC will step up financing support for major technological innovation projects

Source: Caixin Global

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