Guiding Financial Sector in Giving More to Real Economy to Solve Problems for Small and Medium Enterprises
“We will continue to guide the financial sector in giving more to the real economy. Further steps will be taken to address the financing difficulties of micro and small enterprises.” The report on the work of the government submitted for deliberation this year has once again boosted the confidence of micro and small enterprises.
“Financial institutions must serve the real economy as they should do” was written into the government work report for the first time, attracting the attention of many deputies to the National People’s Congress (NPC) and members of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC). The report also pointed out some specific measures. For example, the policy of allowing micro and small enterprises to defer principal and interest repayments on the inclusive-finance loans will be continued, and inclusive loans to micro and small businesses by large commercial banks will increase by over 30 percent this year.
The report defined the scope of loans to support micro and small businesses, in which green enterprises were included for the first time. It also proposed to improve regulation over deposit rates, further lower loan interest rates in real terms, and continue to guide the financial sector in giving more to the real economy.
Inclusive loans by large commercial banks to increase by over 30%.
A series of tangible policies will add vitality to the development of micro and small businesses.
In recent years, the financial sector has stepped up its support for the real economy. On the basis of last year’s proposal that “large commercial banks should increase inclusive finance lending to micro and small businesses by more than 40 percent”, this year’s government work report quantified this as “inclusive loans to micro and small businesses by large commercial banks will increase by over 30 percent this year”. Data show that in 2020, inclusive finance lending by large commercial banks to micro and small businesses increased by more than 50 percent, higher than the target proposed in the government work report last year.
“In recent years, banks have provided more and more support to the financing of small and medium enterprises. This year, large commercial banks are required to increase inclusive loans to micro and small businesses by more than 30 percent, which significantly increases the enterprises’ sense of gain,” said Liu Zhendong, a member of the CPPCC National Committee and chairman of Beijing Liandong Investment (Group) Co., Ltd. He also pointed out that since 2019, the inclusive loans to enterprises had been adjusted from “5 million yuan per credit line” to “less than 10 million yuan per credit line”, and the number of micro, small, and medium enterprises (MSMEs) supported had increased significantly.
At present, there are 380,000 industrial enterprises with annual revenue of more than 20 million yuan in China, which has not changed much in the past five years. Among them, there are more than 8,200 large industrial enterprises with annual revenue of over 400 million yuan, and 370,000 small and medium industrial enterprises with annual revenue of 20 million yuan to 400 million yuan. “The manufacturing industry is faced with transformation and innovative development, and the problem of financial strain is still prominent. It is suggested to further increase the loans to the manufacturing industry (maybe to 15 million yuan), so as to better support the development of the real economy and promote the significant increase in the quantity and quality of industrial enterprises with annual revenue of more than 20 million yuan during the ‘14th Five-Year Plan’ period,” said Liu.
Yang Chengzhang, a member of the CPPCC National Committee and chief economist of Shenyin & Wanguo Securities Research Institute, said, “Besides giving more benefits to financing services, the government work report also proposed to further raise the VAT threshold. This series of policies play a positive role in the development of MSMEs.”
Improving regulation over deposit rates proposed for the first time.
The government work report first put forward the proposal to “improve regulation over deposit rates, further lower loan interest rates in real terms, and continue to guide the financial sector in giving more to the real economy”.
Wang Tianyu, an NPC deputy and chairman of Bank of Zhengzhou, said that improving regulation over deposit rates was conducive to guiding the financial sector in giving more to the real economy and further lowering loan interest rates in real terms.
He stated that this would bring about changes in two aspects. On the one hand, the improvement of deposit rates will help alleviate the pressure of bank capital replenishment. The financial systems, especially the small and medium banks, now face the main risk from the credit risk. The elimination of credit risk leads to the substantial reduction of the profits of small and medium banks, which will lead to the reduction of endogenous replenishment of core capital. With insufficient core capital replenishment, there will be limited space for financial institutions to make interest concessions appropriate for the real economy. Therefore, in order to let the real economy benefit more, it is necessary to do a good job of deposit interest rate supervision.
On the other hand, the improvement of regulation over deposit rates is beneficial to avoiding excessive market competition. Although both deposits and loans increased by around 20 trillion yuan in 2020, most of the deposits remained in the big state-owned banks. Small and medium banks were not as competitive as big state-owned banks in terms of brand advantage, reputation and product innovation ability, and their deposit competitiveness was not strong. Therefore, their cost of deposit absorption was relatively high. At the same time, it also caused some small and medium banks to intervene in the Internet off-site deposit, forming risks and hidden dangers.
The financial sector to take more responsibilities.
“Financial institutions must serve the real economy as they should do” was written in the government work report.
“The primary purpose of finance is to support the real economy, not to feed on itself,” said Xu Nuojin, an NPC deputy and president of Zhengzhou Central Sub-Branch of the People’s Bank of China. He said that the country had issued many good policies in recent years, and financial institutions should take multiple measures to shoulder their responsibilities.
To dispel the concerns of banks, we also need to solve the problem of information asymmetry between banks and enterprises. The government work report proposed that we should move faster to promote the sharing of credit information. Xu said, “Through the sharing of credit information, the portraits of micro and small enterprises and self-employed individuals will be more accurate. The financial services can reach the real economy more widely, efficiently and at lower cost.”
Other measures were also mentioned in this year’s government work report. “We will continue the policy of allowing micro and small enterprises to defer principal and interest repayments on inclusive-finance loans, and increase support for inclusive finance via re-lending and rediscounting. Banks will be encouraged to increase credit loans and first-time loans. We will extend the pay-as-you-go lending model, channel more funds into scientific and technological innovation, green development initiatives, micro and small enterprises, self-employed individuals, and new types of agribusiness, and provide targeted support for enterprises and industries enduring a sustained hit from Covid-19.”