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  • China Premier Li Keqiang at Zhongnanhai leadership compound in Beijing, China.

    China Premier Li Keqiang at Zhongnanhai leadership compound in Beijing, China. | Photo: Reuters

Published 10 November 2018
Opinion

China seeks to prop up small and medium enterprises (SMEs), which are currently facing a slowdown in their growth prospects due to a United States-driven trade war.

During a Cabinet meeting Friday, Chinese Premier Li Keqiang said loans to small firms should not be "willfully withdrawn," and China should help small firms tackle their liquidity difficulties.

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"Government departments are encouraged to take [a] multi-pronged approach," Premier Li said, stressing the importance of clearly defined methods to implement the assistance for SMEs as well as measures to encourage financial institutions to increase their loans to SMEs and cut their financing costs,  Xinhua reported.

The state council's meeting decided that China will adopt more targeted measures to boost the financial sector's support for the real economy and tackle financing difficulties faced by small and micro businesses.

Major commercial banks were called upon to cut their average lending rate for SMEs by 1 percentage point in the fourth quarter and to remove unnecessary procedures and surcharges for financing.

The People's Bank of China, the central bank, has cut the required reserve ratio for commercial banks four times this year, releasing US$330.7 billion.

Collateral that qualifies for use in the medium-term lending facility will be expanded to cover loans for SMEs with a credit quota of up to 10 million yuan per company.

According to estimates made by the International Monetary Fund (IMF), the United States-prompted trade war will affect global economic growth over the next two years.

International Monetary Fund (IMF) Managing Director Christine Lagarde, during a meeting with Premier Li held in Beijing on Nov. 6, said the trade dispute will cost China 0.6 percentage points of its GDP. The IMF forecasts that China will grow 6.6 percent in 2018 and 6.2 percent in 2019. The trade war is "the main factor of uncertainty," Lagarde said.

Premier Li acknowledged external pressures affecting the country's growth prospects, but stressed that "China has enough means and tools to face difficulties."

On the other hand, China will support firms for equity and bond financing. Chinese financial institutions will be encouraged to make SME lending a part of their internal performance evaluations.

The cabinet meeting also discussed ways to use government-managed guarantee funds to make more financial resources available to SMEs.

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