HONG KONG (BLOOMBERG) – China has ramped up financial support for small businesses and pledged better use of local government bonds as the economy showed further signs of a slowdown because of tight property controls and fresh coronavirus outbreaks.
The People’s Bank of China will provide 300 billion yuan (S$62.4 billion) of low-cost funding to banks so they can lend to small and medium-sized companies, according to a statement released after a meeting on Wednesday (Sept 1) of the State Council, China’s equivalent of a government Cabinet. Other measures include interest subsidies to firms hit hard by the pandemic and a bigger role for local special bonds in driving investment.
The increase in support suggests Beijing is becoming more concerned about the growth outlook, with economists expecting the central bank to provide more targeted support in coming months, like cutting the reserve requirement ratio for banks again. Purchasing managers’ surveys released this week showed a bigger-than-expected drop in economic activity last month as the government imposed stringent measures to bring virus cases under control.
“As evidence of a growth slowdown increases, we think Beijing is inching closer towards stepping up policy support,” Dr Lu Ting, chief China economist at Nomura Holdings in Hong Kong, wrote in a note. Policymakers “on the one hand will be increasingly dovish” while on the other, continuing to maintain restrictions in the property sector and high-polluting industries, he said.
The Cabinet said it will “reinforce its policy options”, improving the ability to cope with challenges to ensure a stable economy and employment, according to the statement.
Recently, tighter control of the property sector, a slowdown in export demand and measures introduced to combat an outbreak of the Delta variant of the coronavirus have undercut the economy. Beijing has signalled in recent weeks that it will selectively loosen monetary policy to offset that slowdown.
Wednesday’s meeting signals that the Chinese authorities remain reluctant to provide any large-scale stimulus for now. The State Council meeting re-emphasised its focus on “cross-cyclical” policy, a phrase analysts have said points to more moderate action with a longer time horizon.
The State Council meeting leaving out any aggregate policies “is somewhat different to market expectation”, Jianghai Securities chief economist Qu Hao wrote in a note.
At the end of June, banks had about 888 billion yuan of outstanding loans to small and medium-sized firms funded via the relending facility, according to official data. That is offered at a rate of 2.25 per cent for one-year funds, compared with 2.95 per cent for the more commonly used one-year medium-term lending facility.