China Fiscal Policy At Odds With SMB Lending

China is struggling to bridge its small businesses to financing for growth, with broader fiscal policy at odds with the initiative, according to reports.

South China Morning Post reported on Wednesday (Aug. 29) that the government’s efforts to spur small business lending by pumping money into the financial services market has yielded only modest success. The publication pointed to the government’s conflicting policy of stricter lending rules as one reason why efforts to boost small business loan volumes hasn’t taken off.

“The push to get banks to lend more to small firms is in direct conflict with the government’s effort to reduce risk in the financial system,” the publication stated.

One bank executive unnamed by the publication told the publication that the FI has indeed increased lending to small businesses as a result of government efforts. But its efforts are limited, the executive said, because of more stringent financial regulation as the government aims to rein in risky lending practices. That, coupled with economic uncertainty, means the banks can only do so much when it comes to SMB financing.

“It is hard for a bank to handle credit policy now,” said the manager, according to the publication. “The outlook for small firms has greater risk due to the cooling economy. And the trade war between China and the U.S., as well as exchange rate fluctuations, have created a more complicated situation.

“Given regulators have stressed the need to maintain a bottom line of no systematic financial risks, we have to operate more compliantly,” the executive added.

One state policy bank employee told the publication that small business lending is “riskier,” largely due to business owners’ practice of transferring company assets to personal accounts.

“It also costs so much time to identify their risks, given low transparency,” the employee said.

Last week, the nation’s State Council again called on China’s financial services community to increase small business lending. Similar calls were made only days and weeks prior from President Xi Jinping’s economic advisor and the Financial Stability and Development Committee.

Yet micro and small business loans made up less than one-third of all outstanding corporate loans as of the end of the second quarter, reports said. In the first half of 2017, new small and micro business loans made up 20.9 percent of new corporate loans at banks, the lowest rate since at least 2012.

At the same time, regulators are exploring strategies to curb ballooning corporate debt.