Central cabinet outlines measures to ease SME financing costs

The central cabinet has issued a guideline detailing measures outlined at a July meeting to ease funding bottlenecks for companies, particularly smaller ones.

The State Council document, dated August 5 but posted on its website yesterday, came a day after the central bank reported sharply lower credit data. Total social financing tumbled to almost a six-year low last month, fuelling slowdown concerns.

As "downside pressures remain large" in the economy, the cabinet said it was important to ease high financing costs. While large, state-owned enterprises can take out loans at 5.8 per cent interest, borrowing costs for smaller firms can be as high as 17 per cent.

It added the central bank should keep liquidity "steady and appropriate", ensure good implementation of targeted reserve requirement ratio cuts, and increase lending to areas such as shanty town renovation, railways, services and energy saving.

New yuan loans slumped to 385.2 billion yuan (HK$484.8 billion) in July from June's 1.08 trillion yuan due to seasonal factors, but also reflected sluggish industrial demand and banks' caution on rising bad loans, analysts said.

"More policy easing is unavoidable and lowering the financing cost of the economy is the top priority" for the central bank as Beijing remains keen to achieve a growth rate around 7.5 per cent, said Barclays Capital economist Chang Jian.