Experts expect stable money policy to continue

High-quality development goal set to help small companies and technology firms

Macroeconomic observers see China maintaining a moderate and consistent monetary policy this year.

They also expect more targeted incentives to boost growth of key sectors and shore up weak links.

Among the beneficiaries of such a policy will be the private sector, small businesses and technology firms as the country pursues high-quality development, they said.

Peng Wensheng, chief economist with China International Capital Corp, said in an interview on Thursday that while the country's economy is robustly bouncing back toward pre-COVID-19 levels, a comparatively relaxed monetary environment is still needed to effectively cope with the evolving coronavirus impact and help more businesses stay afloat.

"A tweak of magnitude in monetary policy, if any, is likely to take place in a gradual, moderate manner this year," Peng said, adding that many businesses, especially in the services sector, have been hit particularly hard in the outbreak and need more time to recover.

In recent weeks, the People's Bank of China, the central bank, has pledged in its quarterly and annual meetings that it will make money supply and aggregate social financing grow at basically the same level as the country's nominal economic growth this year.

It will implement a prudent monetary policy that is flexible, precise, reasonable and moderate. The central bank also said it will pay attention to the ideal timing, extent and impact of policies, and maintain the necessary support for economic recovery.

It will also deepen the reform of its interest rate system, and make borrowing more accessible and affordable to smaller businesses in the private sector.

Peng said that notable efforts have been made in recent years by State-owned commercial banks to scale up lending to smaller businesses.

However, while visible progress has been made in inclusive finance, financing needs of smaller businesses still remain acute.

"In addition to sufficient liquidity, targeted steps are needed to tackle financing woes. Effective steps are needed to boost the confidence of commercial banks, and their readiness and capacity in lending," said Peng, an author of two award-winning books on financial circles, interest rate reforms and their impact on China's economy in the past five years.

Wu Ge, chief economist at Changjiang Securities, said growth momentum will likely see a robust pickup in the first quarter, considering the virus-induced slump in the same period last year.

Interest rates are likely to climb moderately, adding to a marginal rise in financing costs for businesses. Against such a backdrop, targeted policies are particularly needed to ensure accessible financing for smaller businesses.

Since August 2019, the PBOC has helped cut smaller firms' financing costs through reform of the loan prime rate, now the country's de facto lending rate, in an effort to break the invisible lower lending limit for loan prices in a market-oriented manner.

Peng said while the reform have successfully nudged more lending to smaller firms, more needs to be done to reduce the cost of finance to smaller firms.

"Incentive mechanisms for lending to small and micro companies for commercial banks must be improved to share with businesses in weal and woe," he said. "Real economy and financial institutions are interdependent, and shall grow and thrive with one another."

China's Ministry of Finance issued a revised performance evaluation rules for commercial banks on Jan 4, settling a new set of performance benchmarks for them.