In accordance with the arrangements of the State Council executive meeting, the People’s Bank of China (PBC) increased the quota of special central bank lending by RMB300 billion to provide stronger support for micro, small and medium-sized enterprises (MSMEs) in difficulties. The funds released will be channeled to eligible locally incorporated banks at preferential interest rates over the coming four months of the year, encouraging the banks to issue more loans to micro and small businesses (MSBs) and self-employed businesses at rates around 5.5 percent on average, thus guiding down the financing costs of MSBs. The RMB300 billion central bank lending will be given in a reimbursement approach, i.e., the locally incorporated banks issue loans to MSBs and self-employed businesses before applying for the equivalent amount of this special central bank lending. In this way, the central bank lending policy will be targeted and providing direct support.
In recent years, central bank lending in support of MSMEs, as a special monetary tool designed by the PBC to support financial institutions to issue MSB loans, has yielded positive results. It effectively motivated locally incorporated banks and promoted rapid growth of MSB loans. MSB financing witnesses “increased volume, expanded coverage and lowered price,” making it remarkably easier for businesses to raise funds, and providing targeted liquidity to the real economy.
In the next step, the PBC will urge all PBC branches to ensure sound implementation of the special central bank lending and guide the expansion of credit issuance for MSBs, thus fully leveraging the positive role of monetary policy tools in stabilizing businesses and securing employment.
