China’s central bank wants to help SMEs with borrowing

The People’s Bank of China announced on Friday, July 9th, that it was taking steps that would help commercial banks lend more money.

As the New York Times reports, this move would help the country’s troubled small and medium-sized enterprises (SMEs) facing a slowdown in spending after COVID.

In China, commercial banks usually have to deposit a small portion of customer deposits with the country’s central bank, but they are free to lend the rest.

But starting July 15, the People’s Bank of China will allow commercial banks to sell a slightly smaller stake.

“If commercial banks are allowed to withdraw some of the money, they will at least theoretically be able to borrow more,” the Times said.

“But the Volksbank also warned in its announcement that the effect could be somewhat subdued, as part of the additional lending will likely quickly disappear into the state coffers when the summer season for tax collection begins.”

The news agency notes that China’s monetary policy has “swung sharply” over the past year and a half due to COVID-19. Volksbank urged banks to issue large loans in early 2020 to ensure companies don’t run out of cash.

The bank’s latest move comes just weeks after joining a group of Chinese regulators and announcing it will cut fees totaling around $ 3.7 billion a year, particularly affecting small businesses and micro-businesses.

The guideline also instructs the payments industry to transfer profits to the real economy, lowers operating costs for marketing companies and “optimizes the development environment of the real economy”. The authorities will encourage commercial banks to waive small business account management fees and to abolish transaction processing fees.