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October 24, 2018

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China pledges to stand by private firms battling financing troubles

Chinese authorities have decided to renew efforts to assist private companies facing financing difficulties, given the importance of those firms to the economy and the job market.

The private sector plays an important role in China’s economy, contributing more than 50 percent of tax revenue, 60 percent of GDP, 70 percent of technological innovation, 80 percent of urban employment and 90 percent of new jobs and new firms.

Answering questions about economic and financial issues, Vice Premier Liu He on Friday reiterated China’s basic economic system and the crucial role of the private sector.

“There must be no irresolution about working to consolidate and develop the public sector; and there must be no irresolution about working to encourage, support and guide the development of the non-public sector,” Liu said.

He added that misunderstanding and deviation existed in implementation, citing a viewpoint of some lenders that it was safe to provide loans to state-owned enterprises, but politically risky to loan to private businesses. “This kind of understanding and practice is completely wrong,” Liu said.

“Liquidity issue has been one of the main problems restraining the development of private companies,” said Dong Ximiao, a researcher with the Chongyang Institute for Financial Studies, Renmin University of China.

On Monday, the government decided to facilitate the bond issuance by private companies, with liquidity support from the central bank to professional institutions, according to a statement after a State Council executive meeting.

As private firms are important builders of socialism with Chinese characteristics, the country will unveil more policies to push for the steady development of those firms, the statement said.

It was decided at the meeting that funding support will be given to smaller financial institutions to raise their capability of serving private firms.

The People’s Bank of China said Monday on its website that it will provide guidance for supporting bond issues of private firms by offering a part of the initial capital.

Following a market-oriented principle, financial institutions will then focus on assisting the bond issues of companies with good prospects and technological competitiveness but which are in temporary difficulties.

“The support on bond issues of private firms will be conducive to stabilizing their expectation and market confidence, and pushing forward the sound development of the bond market,” Dong said.

The central bank also said that it will increase the quotas of relending and rediscount to financial institutions by 150 billion yuan (US$21.6 billion) to ensure that targeted loans can be channeled to private firms.


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