Financing tool to help private firms

Companies will gain easier credit through new bond procedure

China has decided to set up a new bond financing support vehicle to help finance private enterprises and ease their dilemma in getting loans, a move that experts said would stabilize market expectations and confidence.

The State Council, China's Cabinet, decided to establish the vehicle of marketized bond financing for private enterprises at an executive meeting presided over by Premier Li Keqiang on Monday.

The People's Bank of China, the central bank, will provide initial capital to professional institutions that will be entrusted to provide greater credit support to private enterprises that are well-operated but in short-term liquidity difficulties, according to a statement released after the meeting.

Meeting participants decided to strengthen financial services for small, micro and private businesses, with greater refinancing and rediscount support to be given to small financial institutions. Commercial banks and insurance capital can be introduced to establish a risk-sharing mechanism, the statement said.

China firmly supports the publicly owned sector and unwaveringly encourages, supports and guides the development of the nonpublic economy, ensuring equal use of production factors, fair competition in the market and equal protection under the law for all forms of ownership, the statement said.

Private businesses are a vital source of strength for China's economic and social development, and more favorable policies will be promulgated to achieve stable and healthy development of these businesses, the statement added.

The vehicle focuses on bonds issued by private businesses with great markets and business prospects and that are technologically competitive, the central bank said on its website on Monday. On the same day, the central bank injected 150 billion yuan ($21.6 billion) for refinancing and rediscounting for such businesses.

Dong Ximiao, a senior researcher at Chongyang Institute for Financial Studies at Renmin University of China, said liquidity difficulty is now one of the major problems curbing the development of private enterprises. Under complicated domestic and overseas circumstances, financial institutions should be encouraged to provide such support and carry out monetary policies, he said.

Supporting private enterprises to issue bonds in a marketized way is beneficial to stabilize their expectations and market confidence, Dong said. It can also promote a healthy development of the bond market, which will play a vital role in direct financing, he said.

The central government has recently made it a priority to ease financing difficulties for small and private enterprises. On Aug 22, a State Council executive meeting decided to encourage financial institutions to increase loans for small and micro enterprises and reduce their financing costs.

Vice-Premier Liu He said last week that private businesses contribute more than 50 percent of overall taxes, more than 60 percent of China's GDP, more than 70 percent of technological innovation and more than 80 percent of urban employment.

A meeting of the State Council Financial Stability and Development Commission, chaired by Liu on Saturday, called for strengthening the vitality of microeconomic entities, especially financially troubled private enterprises. Financial institutions were urged not to halt loans for enterprises that are in temporary difficulties but with great business prospects and technologically competitive.