SHANGHAI — China’s bank regulator has ordered lenders to offer further help for smaller companies struggling with debt because of difficulties in obtaining credit.
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The China Banking Regulatory Commission, in a notice late Tuesday, outlined steps the state-run banks should take to help relieve a credit crunch threatening thousands of mostly private smaller enterprises.
It said banks should especially provide support for companies that borrow less than 5 million yuan (about $788,000) per year and show greater tolerance for failing loans to smaller companies.
Banks — which tend to favor big, politically influential state enterprises — can also issue special bonds to help provide financing to smaller businesses.
It said lending to smaller companies, the main creators of new jobs despite the dominant role of state enterprise, totaled over 27 percent of all bank lending by the end of August.
The latest notice buttresses earlier instructions to banks to help support the private sector.
China’s central bank has ordered banks to keep record high levels of reserves, aiming to cut back sharply on excess investment in property and other projects to help curb inflation. That policy has further eroded the relatively weak access private companies have to bank credit.
The premier, Wen Jiabao, on Tuesday reiterated Beijing’s intention to keep fighting inflation as its main priority, while adjusting policies to help keep economic growth on track, the official Xinhua News Agency reported Wednesday.
The CBRC chairman, Liu Mingkang, has acknowledged concerns over the potential ripple effects from failing informal lending networks that have been the mainstay for small companies needing to bridge gaps in financing from banks.
At a conference last week, Liu insisted the risks from the problem, which has radiated from the region around the southeastern port city of Wenzhou, a bastion of private business, were under control. There, pyramids of high-interest private lending have been collapsing as companies whose profits are dwindling due to rising costs and weakening demand default on their debts.
Private economists put the scale of informal lending at up to 4 trillion yuan ($628 billion), or up to 10 percent of China’s GDP. But most analysts say there is little threat to China’s massive state-run banks from some of these loans turning bad. The bigger risk is having the collapse of informal lending networks spread throughout the country.
Last week, China also gave the go-ahead for several local authorities to sell bonds as it moves to bridge financing shortfalls and prevent debt defaults by overextended provincial governments.
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