China rolled out a series of measures to help struggling smaller companies amid a slowing economy, vowing to boost lending, reduce borrowing costs and make better use of the country’s vast pool of foreign-exchange reserves.
China’s economy grew at its slowest pace in over five years in the third quarter, and growing numbers of borrowers, many of them smaller companies, have struggled to repay bank loans.
The government has already tried a number of measures to make it easier for borrowers to get credit–but so far it has failed to resolve corporate funding problems, analysts say.
“The problems of high funding costs and no access to credit have been relieved in some regions and sectors, but they are still prominent,” said the State Council, the nation’s cabinet, in a statement after a meeting chaired by Premier Li Keqiang.
The government body said it would make “innovative use” of the country’s foreign-exchange reserves to support the real economy. It didn’t give details but China’s foreign-exchange reserves stood at $3.89 trillion at the end of September, according to government data.
China doesn’t disclose details of its foreign-exchange investments but much of the total is estimated to be in stable but low-yielding U.S. government bonds. Economists have long called for putting some of those funds to work in the home market.
The government also said it would give more flexibility to banks in their loan-to-deposit ratio, a move that would allow lenders to extend more credit to small companies and the agricultural sector. Under current rules, Chinese banks must keep their loan-to-deposit ratios below 75%. For every dollar a bank collects in deposits, it can only lend 75 cents.
It also said it wanted to help write off more of their bad loans to small firms to encourage fresh lending. It didn’t provide further details.
The State Council said it would ease profit requirements for initial public offerings and lower the threshold for the listing of smaller firms on the country’s stock markets.
China’s economic growth slowed to 7.3% year on year in the third quarter, down from 7.5% in the second quarter and 7.7% for the full year of 2013. The third quarter was the slowest pace since the first quarter of 2009, when it fell to 6.6% during the height of the global financial crisis.
More recent economic data, including industrial production, fixed-asset investment and retail sales in October all pointed to further weakness in the world’s second largest economy as it enters the final quarter of this year.
In a bid to guide domestic interest rates lower and ease the borrowing burden of domestic companies, the central bank injected a total of 769.5 billion yuan ($125.9 billion) of liquidity into the country’s banking system in September and October.
The central bank has also allowed banks to lend more of their deposits if they were extending credit to small firms and farmers.
Analysts said that the government was trying to help smaller companies but so far was avoiding using bigger weapons–such as a cut in benchmark interest rates or making more aggressive investment by the state–to stimulate the economy.
“A lot of people had believed policy makers would be supporting growth (more actively),” said Mark Williams, economist at Capital Economics. “They are trying to make it easier for smaller firms to compete with bigger companies in getting access to credit.”
The State Council also pledged in the statement to accelerate its plans to liberalize interest rates but said it didn’t want to see lending rates go up. It didn’t explain how it planned to do this or give a more detailed timetable for the overhaul.