(Bloomberg) -- China announced fresh measures to ease the funding strains of private companies, as top officials seek to restore confidence in the world’s second-largest economy.
The State Council announced it would support bond financing by private firms on Monday, and said the central bank will provide funding to facilitate this. The People’s Bank of China soon after announced a plan to support such issuance, without providing any details of the size of the plan, or when it would begin.
The central bank reiterated President Xi Jinping’s vows to offer "unwavering" support for the private sector, which has been most affected by the government’s campaign to curb debt and cut the shadow banking sector. The collapse of stock prices has also hit the private sector hard, as has the slowdown in economic growth.
The new bond support tool isn’t just a central bank policy, but an urgent, national-level policy, according to Iris Pang, Greater China economist with ING Groep (AS:INGA) NV in Hong Kong. "More and more companies are going to have payment difficulties on their existing bonds or existing loans," and the new policy "should help avoid systemic default risk in China," she said.
There should be some pilot cases within the next month or so, according to Pang.
Relending Expansion
In a separate statement on Monday, the central bank also announced a 150 billion-yuan ($22 billion) increase in its re-lending and re-discounting quota. These are tools that allow the central bank to supply financial institutions with money to lend. The quota was also raised by 150 billion yuan in June.
That should be a lifeline for small and medium-sized enterprises, Pang said. "For the SMEs, they are more likely to be exporters, so they are hurt more directly by the trade war."
These measures are a follow-up to the confidence-boosting comments from policy makers last week, and are trying to show they are making good on their promises of supporting the private sector, said Yao Wei, chief China economist at Societe Generale (PA:SOGN) SA in Paris. "If the efforts are sustained, they will certainly be positive to everyone’s confidence in long-term reforms, even though they may not lead to a quick, short-term growth rebound."
China’s central bank will initially provide funds to professional agencies for them to support bond issuance by private companies, the State Council said after a meeting led by Premier Li Keqiang on Monday. The PBOC will focus its support on companies "suffering temporary difficulties but which have market share, prospects and technological competitiveness," it said in the statement on its website.
(Updates with economist’s comment from fourth paragraph.)
