Premier vows to cut costs for small firms

China will work harder to ensure financing costs faced by micro and small enterprises are further reduced, with a target of making outstanding loans to these firms approved by the five large State-owned commercial banks increase by over 30 percent this year, a State Council executive meeting chaired by Premier Li Keqiang decided on Wednesday.

"Lowering these enterprises' financing costs is a pressing issue in our economy today. Our prudent monetary policy should be eased or tightened to the right degree to keep liquidity reasonably sufficient. We need to exercise well-timed regulation rather than flood the economy with stimulus measures," Li said.

It was decided at the meeting that the government must make flexible use of various monetary policy instruments. A policy framework for applying a fairly low reserve requirement ratio for small and medium-sized banks will be established.

The scale of re-lending and rediscount will be expanded and more targeted cuts in the reserve ratio for small and medium-sized banks will be made. Funds that are freed up through these measures will be used for lending to private companies and to micro and small enterprises.

Bond financing support instruments will be promoted to determine that the scale of both bond financing by private firms and special bonds issued by financial institutions for such enterprises exceeds 2018 levels.

Banks need to improve their evaluation mechanisms to strengthen confidence, readiness and capacity in their lending to such enterprises, it was urged at the meeting. The government will support banks in formulating inclusive financing plans dedicated to these enterprises and guide banks toward proper interest rate determination.

All these measures are designed to ensure that the balance of loans extended to micro and small enterprises by the five State-owned commercial banks－Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications－increases by over 30 percent this year, and the overall financing costs for micro and small enterprises will be trimmed by another 1 percentage point over last year.

"We must resolutely bring down the financing costs for micro and small enterprises. This is a crucial task in promoting economic development as it helps lift employment and contributes to the healthy and steady growth of private companies," Li said.

The central government will continue to allocate funds to incentivize reductions in financing fees faced by micro and small enterprises. The State Financing Guarantee Fund will support no less than 200 billion yuan ($30 billion) of guaranteed loans to at least 100,000 micro and small enterprises this year.

Editor: John Li