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China Tells Its Banks To Up SME Lending

As China’s economy begins to hit the brakes and small businesses in the nation are increasingly defaulting on their loan repayments, bank watchdogs are looking to take action.

According to reports, the China Banking Regulatory Commission has ordered major financial institutions to boost their lending to small- and medium-sized businesses in an effort to jumpstart the economy. Banks have been ordered to offer more credit and increase their SME lending to levels that surpass those seen last year.

Reports say Chinese banks issued 20.7 trillion yuan worth of small business loans, making up about 24 percent of their total business lending in 2014.

While SMEs struggle to gain financial footing amid an economic downturn, reports say the regulators have also appealed to banks to be more compassionate with SMEs and their repayment status, and to hold off on cutting their lines of credit.

In addition to increasing small business lending and easing up on repayment crackdowns, authorities have also taken to other ways to strengthen the economic health of SMEs. According to reports, the China Insurance Regulatory Commission now lets insurance firms invest in venture capitalist funds, though with strict regulatory requirements. Beforehand, reports say, insurance companies were only permitted to invest in the small business sector through the stock market and asset-backed projects.

SMEs are often considered the backbone of China’s economic strength, but reports note that the economy grew at its slowest pace last year to 7.4 percent – the weakest in more than 20 years.

Despite the slowdown, reports noted a record year for China’s e-commerce industry, spearheaded by the behemoth corporation Alibaba. Late last year China’s State Council championed the support of the e-commerce market to strengthen the nation’s economy and raise domestic consumption.

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