China launches guarantee fund to spur credit to small firms

BEIJING (Reuters) – China has formally set up a national guarantee fund to encourage more lending to small firms and farmers, the finance ministry said on Wednesday, in a step to support the economy amid an escalating trade war with the United States.

China’s cabinet has approved plans to launch a financing guarantee fund with an initial size of at least 60 billion yuan ($8.73 billion), to be funded by the central government with support from financial institutions.

The national financing guarantee fund has inked deals with eight provincial-level guarantee and re-guarantee agencies and seven commercial banks including China Construction Bank, the ministry said in a statement posted on its website.

The fund aims to guide more financing resources to small firms and the rural sector, the statement quoted vice finance minister Liu Wei as saying.

Earlier this month, the government unveiled tax breaks for banks and other financial institutions to encourage lending to small firms, in the latest step to support the cooling economy amid rising trade tensions with the United States.

The central bank has cut reserve requirements for banks three times this year to boost liquidity, but lenders remain reluctant to lend to small and private firms.

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