China to cut re-lending rates for small firms

CHINA will cut re-lending interest rates for small and micro enterprises by 0.5 percentage point as part of a broader policy package to ease the financial strain on small firms, a central bank document said yesterday.

The re-lending and rediscount quotas for small companies, as well as sectors for rural areas, will be raised by 150 billion yuan (US$23.11 billion), according to guidelines for increasing financial support for small and micro firms, released on the website of the People’s Bank of China.

Better mechanisms will be in place to support the issuance of financial bonds by small companies, while financial institutions will be urged to issue securities backed by small enterprise loans. These measures are expected to provide credit of over 100 billion yuan, according to the guidelines.

Loans for small firms with a credit line of 5 million yuan or less will be included in the scope of collateral for the PBOC’s medium-term lending facility operation.

Small firms will be given more weight in the PBOC’s macro-prudential assessment framework under the guidelines.

From September this year until the end of 2020, interest income for credit up to 5 million yuan, compared with previous 1 million yuan, for qualified small firms as well as individual businesses will be exempt from value-added tax.

China will also support the development of venture capital and angel investments to provide more financing channels for small firms under the guidelines.

The measures followed a PBOC statement on Sunday, which said it would cut some banks’ reserve requirement ratios by 50 basis points on July 5.