China’s Central Bank Wants To Help SMBs Borrow

China’s Central Bank Wants To Help SMBs Borrow

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The People’s Bank of China said Friday (July 9) it was taking measures that would help commercial banks lend more money.

As The New York Times reports, this move would help the country’s struggling small and medium-sized business (SMB) retailers who are faced with a post-COVID slowdown in spending.

In China, commercial banks are typically required to put a small portion of customer deposits into the country’s central bank but are free to lend the rest.

But beginning July 15, the People’s Bank of China will allow commercial banks to turn over a slightly smaller share.

“Allowing commercial banks to take back some of the money will, at least in theory, free them up to lend more,” per the Times.

“But the People’s Bank also cautioned in its announcement that the effect might be somewhat muted, because part of any extra lending is likely to disappear quickly into the government’s coffers as the summer tax collection season starts.”

The news outlet notes that China’s monetary policy has “swung sharply” in the past year and a half due to COVID-19. The People’s Bank urged banks to lend heavily in early 2020 to ensure businesses didn’t run out of cash.

The bank’s latest move comes just weeks after it joined a group of Chinese regulatory bodies in announcing it would lower the fees totaling around $3.7 billion a year that affect small businesses and micro-enterprises in particular.

The directive also instructs the payment industry to transfer profit to the real economy, reduces operating costs for marketing entities and “optimizes the development environment of the real economy.” Authorities will have commercial banks waive account management fees for small businesses and eliminate settlement fees on transactions.

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