So, after some concerns and worries, the Chinese government has responded with new measures to try to solve the growing problem of tight financing for small and medium sized businesses. I would describe these measures rather as the” how to stop crazy bosses from running away because they have borrowed from loan sharks” policies.
Following a meeting in the State Council, Premier Wen Jiabao announced six new measures to support small business:
The more important 4 points of the 6 are:
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Increase small businesses’ access to credit from banks, with growth of credit to small businesses not lower than the overall loan growth
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Banks should scrap unreasonable fees charge to small businesses to reduce costs of running small businesses
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Explore more channels for small businesses to obtain credit
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Refine differential regulatory structure for small businesses. Loans of the size below CNY5 million could be excluded in the calculation of of loan-to-deposit ratio, and would allow banks to use the same risk-weighting as retail loans
The State Council will also raise the the entry point for some taxes for small businesses and reduce some stamp duties, etc.
On the whole, policymakers seem to be aware of the problem (of course they are). But these measures aren’t really that dramatic against the backdrop of a tightening cycle. Also, the it does not sound like a very good idea to reduce the risk-weighting of SME loans, which are more risky. I am already very pessimistic about Chinese banks, and I am sure that there is room to be even more bearish on banks if policy makers think that it is a good idea to start lending indiscriminately again.
On the whole, I am not convinced that these will help a great deal.
On another front, Chinese central government appears to be going the other way in keeping the pressure on credit. Earlier this year, it asked local governments to come up with measures to curb property prices. Local governments responded with half-hearted measures and only one of them had a target for falling prices. Then, earlier this year, we had Haikou of Hainan reportedly cancel the property restriction.
Now, Foshan of Guangdong announced yesterday that it would also cancel the purchase restrictions. However, they withdrew that decision to withdraw the restriction on the same night (via WSJ Chinese).
FT Beyond Brics points out that the prices fall in Foshan was not particularly big, but transaction volumes have collapsed. The reason for the withdrawal of the curb is probably due to the reality that local governments themselves rely on real estate related income to fund themselves.
But why the withdrawal of the withdrawal? As mentioned a while ago, while local governments are worried about the health of real estate developers as local governments depend on them, the view from the top is very different. As FT points out, senior government officials would like to see some developers fail, and that would force them into cutting prices in order to generate cash flow to survive.
This is a manifestation of the conflict of interest between the central government which wants to see home prices come down and local governments and real estate developers which don’t. The local government and real estate developers seem to have run out of luck this time around.
