China to step up funding support for private firms

BEIJING (Reuters) – China’s central bank will step up funding support for private firms including developing an equity financing tool, its chief, Yi Gang, said on Tuesday, the latest step to support a slowing economy pressured by a trade dispute with the United States.

China’s overall liquidity is ample but more effort is needed to channel cash to private firms and other parts of the economy where support is needed, Yi told the state-owned Economic Daily in an interview.

The People’s Bank of China (PBOC) has pumped out a net 2.3 trillion yuan ($332.60 billion) in liquidity this year by cutting banks’ reserve requirements four times, after offsetting maturing medium-term lending facility loans, Yi said.

But private firms, which account for 60 percent of China’s gross domestic product and 80 percent of urban jobs, remain cash-starved, he said.

“The problem of financing difficulties for private enterprises is particularly prominent, mainly because financial institutions’ risk-taking capacity is falling and they are unwilling to take risks,” Yi said.

An unprecedented convergence of economic stresses this year is weighing on China’s once vibrant private sector, compelling some entrepreneurs to question the effectiveness – and true intent – of government policies.

The PBOC would use a policy mix of “three arrows” to boost bank loans, debt and equity financing for private firms, Yi said.

The central bank will expand a recently launched scheme to promote private firms’ bond issuance, with 30 of them gearing up for issuing debt, he said.

Three firms had raised 1.9 billion yuan under the scheme – an instrument to promote equity financing for private firms, he added.

The PBOC was also studying plans to promote equity financing for private firms, Yi said, adding that it was working with fund managers, brokerages and commercial banks on the initiative.

Premier Li Keqiang said on Tuesday China would not resort to strong monetary stimulus, but instead it would take targeted policy steps to support private companies and smaller businesses.

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