China’s financial policies ‘accidentally hit’ private sector, says top political adviser

By Zhang Hongpei Source:Global Times Published: 2019/2/24 22:03:39

Funding support needs to be enhanced, advisor says


Yang Weimin, deputy head of the Economic Committee of the National Committee of the Chinese People's Political Consultative Conference, speaks at a press conference in 2018. Photo VCG


 

China's financial policies, which emphasize deleverage and tighter regulation, are moving in the right direction but the system has also hurt many private companies unintentionally, said a vice chief of a political advisory body.

These policies, aimed at curbing potential systemic financial risks, mean that private companies have obtained less and less credit from financial institutions or other proper channels, said Yang Weimin, deputy head of the Economic Committee of the Chinese People's Political Consultative Conference (CPPCC).

Yang made the comments during a lecture on interpreting the Central Economic Work Conference in December.

The lecture appeared on Saturday on the official website of the National Committee of the CPPCC.

"Private companies have been relying more on off-balance-sheet financing via improper channels in recent years. The current regulations are just targeted at cleaning up such off-balance-sheet business, thus cutting off their financing channels," said Yang.

The private sector provides more than 80 percent of China's urban employment and accounts for more than 70 percent of technological innovation, 60 percent of GDP and 50 percent of taxes, according to the All-China Federation of Industry and Commerce.

The Chairman of the China Banking and Insurance Regulatory Commission, Guo Shuqing, was quoted as saying in a People's Daily report in November last year that one-third of all new loans from large banks and two-thirds of the loans from small and medium-sized banks are meant to be directed to the private economy. 

"The proportion of private firms' loans among new loans is expected to reach no less than 50 percent three years later," said Guo. 

Yang Wang, executive vice-principal with the Hande FinTech Research Institute at Global FinTech Lab, said the ratio of new loans obtained by state-owned enterprises and private-sector firms was 5.6 to 1 in 2018, based on his research.

"For indirect financing via banking institutions, private companies have no advantages since their profitability is relatively weak," Yang told the Global Times on Sunday.

Besides, the infrastructure for credit system is not at a high level yet, which also poses an obstacle for private firms' financing, said Yang. 

"Compared with the mature banking loan system, I think direct funding has become more of an issue to tackle for private firms," said Dong Dengxin, director of the Financial Securities Institute at Wuhan University of Science and Technology.

Dong told the Global Times on Sunday that the direct financing channel is currently not very effective and yet costly for private firms. "That does not serve the real economy in real terms," he noted. 

The Chinese government said it will increase direct funding support for private companies and reduce financing costs to a reasonable and stable level while guaranteeing that the private sector can enjoy improved financial services, according to the latest guidelines released by the State Council, China's cabinet, on February 14.

Banks, insurers and stock exchanges are required to support private-sector financing with stock and convertible bond issuance along with a science and innovation registration-based board in Shanghai, a flagship program for regulators this year.

The Chinese NASDAQ-style board is expected to support new growth opportunities for the non-public sector, said experts.

Meanwhile, the IPO approval system and refinancing activities will be accelerated, and expansion of the scope of convertible bond issues will be reviewed, the cabinet said.

Yang, who is also the deputy head of the Office of the Central Leading Group on Financial and Economic Affairs, said in his lecture that private firms' confidence will surely be bolstered this year.


Newspaper headline: Policies hit private companies


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