China to offer more support for private firms seeking market funds

BEIJING (Reuters) - China will roll out more policies to support private companies, including measures to help them raise funds in capital markets, the government said, as economic growth slows to a pace not seen since the global financial crisis a decade ago.

100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013. REUTERS/Jason Lee

Commercial banks historically have preferred to lend to state-owned enterprises rather than private companies, which are viewed as being less creditworthy.

Their access to credit further shrank after Beijing opened a campaign against a buildup of corporate debt and off-balance- sheet loans, the chief source of the private sector’s financing.

Economists say the problems for companies are one reason the economy is slowing. Gross domestic product growth in the third quarter slowed to 6.5 percent, the least since the first quarter of 2009.

The central bank has taken a number of steps this year to spur commercial banks to lend. But Beijing has so far stopped short of massive credit stimulus, concerned about undoing its multi-year campaign to reduce corporate leverage and curb risky lending practices.

The People's Bank of China will provide initial funding to institutions that can help enhance the credit profile of private companies that are operating normally but face temporary liquidity difficulties, said the State Council, or cabinet, in a statement on its website

When the conditions are ripe, commercial banks and insurance companies can be guided to participate on a voluntary basis in the funding to share the risks, it said.

In recent weeks, the government has repeatedly declared its support for private enterprises, even as state-owned enterprises are encouraged to become stronger. The private sector accounts for 60 percent of China’s GDP and 80 percent of urban jobs.

The government will also step up support for small and medium-sized financial institutions with refinancing needs, the State Council said.

The State Council disclosed the plans after a meeting led by Premier Li Keqiang.

In a later statement on Monday, the central bank said it would boost re-lending and re-discount quotas by 150 billion yuan ($21.6 billion) to help the financing needs of small enterprises. That would be in addition to another 150 billion yuan issued in June.

“Government policies are starting to take effect, but those policies are taken as China is being forced into a corner. Against the backdrop of the financial de-leveraging campaign, the latest policies are a compromise,” said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

Last week saw Chinese stocks plummet to four-year lows as the outlook for the economy worsened while China’s trade war with the United States raged on.

On Monday, China’s benchmark blue-chip index bounced back, surging over 4 percent in its best daily performance in almost three years, while shares in Hong Kong climbed more than 2 percent, as investors took heart from a flurry of government promises late last week to support the economy.

China’s securities firms plan to set up a collective asset- management scheme worth billions of dollars to support the development of private companies, the Securities Association of China said late on Monday.

($1 = 6.9416 Chinese yuan renminbi)

Reporting by Ryan Woo and Beijing Monitoring Desk; additional reporting by Stella Qiu; editing by Nick Macfie