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China moves to prop up smaller firms amid economic challenges

China moves to prop up smaller firms amid economic challenges

The Chinese government is increasing its efforts to bolster SMEs’ ability to cope with short-term difficulties brought about by recent outbreaks of Covid-19, according to a senior minister.

Xu Xiaolan, vice-minister of the Ministry of Industry and Information Technology (MIIT), said many SMEs have struggled to operate amid repeated outbreaks of coronavirus, but he added that underlying economic fundamentals, including its strong resilience and long-term sustainability, remain unchanged.

Xu said the Ministry was working with relevant government bodies to help SMEs deal with challenges, such as helping them lower operating costs and as easing their difficulties in securing financing and collecting payments.

China’s State Council recently announced measures to help SMEs withstand the short-term challenges. In its document outlining the proposals, it said that state-owned commercial banks will work to increase loans to small and micro enterprises by 1.6 trillion yuan ($237.4 billion) this year.

It added that local governments should also arrange bail-out funds for small, medium-sized and micro enterprises, and provide subsidies for rent, loan interest and other aspects for those facing operational difficulties.

According to the MIIT, average tariffs for SMEs’ broadband and private internet lines will be reduced by 10% this year, and the ministry is encouraging digital service providers to reduce the cost for SMEs to use cloud platforms so that they can better utilise digital technologies to boost efficiency.

More efforts will also be made to enhance the full integration of all spheres of small, medium-sized and large firms, including industry, supply and data chains, to promote symbiosis, according to a document jointly released by the MIIT and 10 other ministries.

It proposed encouraging large enterprises to share their design and development strengths and allow smaller counterparts to access their equipment and laboratories.

It also called for further providing small businesses with free access to related project libraries and databases and matching their industry chains with corresponding large companies to push forward greater integration, the document said.

Yang Yuanqing, chairman and CEO of Lenovo Group, said established companies such as the IT giant should play a bigger role in driving innovation and development of SMEs in the supply chain. According to Lenovo, SMEs account for 44.5% of the company’s business, and it will offer help such as funds and marketing resources for them.

 

China cuts interest rates to help growth

China has cut interest rates in a fresh move to shore up the economy. The over-five-year loan prime rate (LPR), on which many lenders base their mortgage rates, fell by 15 basis points to 4.45%, said the National Interbank Funding Center. It represents the largest reduction in this rate since the country revamped the LPR mechanism in 2019.

The one-year LPR remains unchanged, at 3.7%.

The over-five-year LPR cut “reflects China’s strengthened efforts to support the real economy”, said Wen Bin, chief analyst at China Minsheng Bank. “This is a key step to anchor market expectations, bolstering market confidence,” Wen said, adding that it will spur financing demand by axing the financing costs for enterprises and funding costs for banks.

The five-year LPR was lowered by a “more than expected” margin, said Zhang Aoping, the Dean of the Incremental Research Institute. “These measures will help the real estate market sustain stable and healthy development and stimulate overall demand,” said Zhang.

China’s property sector, vital for economic growth, is taking a hit as recent fresh outbreaks of Covid-19 and the volatile global situation impacted the economy.

Authorities have stressed the negative impact will be short-lived. Measures, including tax refunds and fee cuts, the deferral of social security contribution payments, and the smoothing of industrial and supply chains, have also been taken to support the economy.