UPDATE 2-China unveils steps to ease credit crunch for small firms
* Analysts say the move does not mark any policy shiftBEIJING, Oct 12 (Reuters) - China on Wednesday unveiled a
set of measures to expand financing supports for cash-starved
small businesses, a step signalling some relaxation of credit
controls but not amounting to a fundamental shift in monetary
policy.The steps, including allowing small companies to issue more
bills and bonds while paying less taxes, were announced on the
government’s web site (www.gov.cn) after a cabinet meeting
presided over by Premier Wen Jiabao.Small banks will continue to implement “relatively” low
reserve requirement ratios (RRR) compared with big banks, the
cabinet said, falling short of announcing a cut in RRR as
expected by some investors.China’s RRR for big banks now stands at 21.5 percent, and
the ratio for smaller banks, which tend to be more focussed on
financing smaller firms, is 19.5 percent or even lower.”Currently, some small- and micro- sized firms are facing
operating difficulties and the problem is also that they are
facing a heavy tax burden and finding it hard to get finance,
all of which we need to give high attention to,” said a cabinet
statement.The government will raise the threshold for levying
value-added and business taxes for such firms, easing their
burdens.Despite the move, analysts believe the government will
refrain from easing monetary policy in the near term for fear of
reigniting inflation pressures.Guo Tianyong, an economist at Central University of Finance
and Economics in Beijing, said the move should be seen as a
“targeted” easing of credit curbs, rather than an
across-the-board policy easing, given inflation remains
elevated.Small firms hold the key to a stable job market in China as
they account for 75 percent of employment.”It is far-fetched to read these measures as a signal of
Beijing relaxing its macro policies,” said Qiao Yongyuan, an
analyst at CEBM in Shanghai.”It is a set of detailed guidelines concerning more about
providing support for smaller firms and regulating private
financing,” he added.China’s annual inflation pulled back to 6.2 percent in
August from July’s three-year high, cementing expectations that
Beijing will hold off further policy tightening amid
uncertainties hanging over the global economic recovery.Since last October, the central bank has raised interest
rates five times and increased bank reserve requirement ratios
— the percentage of cash deposits they must set aside in their
vaults — nine times.The State Council, or cabinet, also vowed to step up a
crackdown on the high-interest underground lending market.Cash-strapped Chinese private firms have struggled to win
bank loans during a credit clamp-down by Beijing, often forcing
them to borrow on the underground markets that pool money from
individuals and firms — at annual interest rates as high as 100
percent.The eye-watering rates, more than 15 times China’s benchmark
lending rates, have pushed some firms to the limit. And a string
of private company bosses in China’s entrepreneurial capital,
Wenzhou in coastal Zhejiang, have skipped town after failing to
repay such loans.
