China has pledged to boost credit to private companies and extend other funding measures to small firms as policymakers seek ways to shore up confidence and support the recovery.
(Bloomberg) — China has pledged to boost credit to private companies and extend other funding measures to small firms as policymakers seek ways to shore up confidence and support the recovery.
The nation will expand a bond credit enhancement tool that is backed by financial institutions to all qualified private companies, the National Development and Reform Commission said in a notice posted Tuesday on its website. In the past the policy has mainly been used to help cash—strapped property developers raise funds from the bond market.
The notice included 28 points aimed at broadening market access, enhancing financial support and promising to meet demand among firms for land, strengthening legal protections, and cracking down on negative commentary about the private sector.
“The measures are based on the needs of private firms and focused on resolving the outstanding problems faced by the sector,” said NDRC official Wang Shancheng at a briefing Tuesday. “We expect them to be pragmatic and want effects to kick in in the near term.”
The measures from the NDRC, China’s top economic planning agency, flesh out promises top leaders including President Xi Jinping have made to promote the growth of the private sector as the nation’s recovery searches for a stronger footing.
Policymakers are focusing on how to rebuild confidence among private firms after the sector was battered by pandemic-related restrictions, as well as regulatory crackdowns on the tech and property sectors. Companies are now holding back from investing or hiring, weighing on an economy that is also dealing with challenges from a property slump, falling exports and soaring youth unemployment.
The slew of policy sweeteners have contributed to a rally in China’s financial markets, where investors are betting that regulators will act swiftly on the Politburo’s promises of support after weeks of disappointment over a lack of execution.
A gauge of Chinese shares traded in Hong Kong was unchanged as of the mid-day break on Tuesday. Still, it has jumped about 10% since the Politburo meeting. The mainland’s benchmark CSI 300 Index has gained around 5% during the same period, although it booked a marginal loss Tuesday morning.
“The measures enhance the strength and expand the scope of previous funding support for the sector, addressing the short-term needs of private firms,” said Bruce Pang, head of research and chief economist for greater China at Jones Lang LaSalle Inc.
For the long term, lifting the barriers to market entry would be key, Pang said, adding that he expected private investment to return to positive year-on-year growth in the fourth quarter.
Year-to-date growth in fixed asset investment by private firms has been negative since May, official data showed.
The NDRC also reiterated support for the healthy development of internet platform companies and vowed to unveil more investment projects by such companies. A pro-growth pledge singling out those types of firms was included last week in a readout of a meeting by the Politburo, the ruling Communist Party’s top decision-making body.
The agency said the size of credit loans for private firms would be expanded. In addition, they promised to push government agencies and state-owned enterprises to pay receivables owed to private companies — a measure that could bring meaningful help “if a deadline and enforcement mechanism is introduced,” said Ding Shuang, chief economist for greater China and North Asia at Standard Chartered Plc.
What Bloomberg Economics Says …
“China’s government is making good on its pledge to support the economy with a raft of new policies to boost consumption and buoy the property market. The moves increase the chances of a more robust recovery in 2H, but the balance of risks is still pointed downward. We think more is probably required to counteract the drag from the slumping housing market and weak sentiment among businesses and consumers.”
— Chang Shu, economist
Read the full report here.
Authorities have announced other actions in the wake of that Politburo meeting. On Monday, China’s State Council, the country’s cabinet, called on cities to introduce policies to ensure the healthy development of their property markets. Earlier in the day, officials released a broad plan to boost consumption.
“The risk is actually having too long a list with the key measures being diluted,” said Ding of Standard Chartered. “Implementation is essential to gradually rebuilding confidence, and it will take time.”
“What matters more is to foster an environment in which private business feels comfortable to invest, with clear and fair rules that can be expected to be abided by all parties,” he said.
(Updates throughout with analyst commentary, details from the NDRC press conference.)
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