China will take market-oriented reform measures to meaningfully reduce real interest rates and ease financing difficulties, the State Council’s executive meeting chaired by Premier Li Keqiang decided on Aug 16.
The Chinese government puts great emphasis on work related to lowering real interest rates and financing costs for businesses, particularly private, micro and small firms. Since the beginning of this year, the overall financing interest rate in China has steadily declined.
“Thanks to the measures taken by various sides since early this year, real interest rates have been lowered to a certain degree. While borrowing was made less expensive, difficulty in accessing financing has become more acute,” Premier Li said at the meeting.
Attendees at the meeting said it is important to keep liquidity reasonably sufficient, and take reform measures to notably lower real interest rates.
It was decided at the meeting to reform and improve the loan prime rate (LPR) mechanism. An above-five-year LPR will be made available in addition to the current one-year LPR to serve as pricing references for new bank lending. The purpose is to catalyze further reductions in real interest rates.
It is important to make lending rates and fees more open and transparent. Charges by financial institutions will be strictly regulated, and intermediate agencies will be urged to cut fees.
“The lowering of real interest rates should be carried out in an open and transparent manner. There needs to be continuous progress in reducing financing costs to deliver tangible benefits to businesses,” Premier Li said.
It was agreed at the meeting that a combination of monetary and lending policy tools will be implemented to facilitate a greater role by the guarantee system and reduce financing costs for the real economy.
“The central bank needs to take a multi-pronged approach and employ a mixture of tools to ensure meaningful reductions in real interest rates,” Premier Li said.
The meeting also decided to enhance lending support for creditworthy enterprises with market potential and ensure that loans will not be discontinued for no good reason. Financing woes of micro and small firms must be effectively addressed.
Evaluation and supervision will be strengthened to guide banks in expanding the market, innovating business models and delivering better services for the real economy.
“We must earnestly address the financing difficulties of micro and small firms. Otherwise, employment could be affected given the large number of these companies,” Premier Li said.
