Sounder mechanism shores up SMEs funding

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02:24

The People's Bank of China (PBOC) has been taking measures to encourage banks to lend money to small and medium sized enterprises (SMEs) as 99 percent of all the companies in China falls under this classification, and they have huge demands for loans.

A PBOC survey shows that demand for loans from SMEs in the first quarter increased by four percent compared with last year. However, it is not easy for them to get the finance they need. China Merchants Bank’s chief analyst Li Liuyang commented that SMEs have a bearing on the employment rate.

“SMEs undertake most of the labor and employment of the economy. If SMEs face difficulties in funding, there will be some shocks to the total employment. Now we need to take some actions to make sure that SMEs could easily get funds from the capital market,” Li added.

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Actually, the PBOC intends to use extra money to issue loans to the SMEs. The PBOC has started asking commercial banks to keep records of all the transactions involved in the targeted required reserve ratio (RRR) cuts. That is expected to deliver more transparent capital flows.

“If commercial banks keep records of all the transactions, we will be aware of the destinations of the capital flow. It will set more limits for commercial banks. In other words, the central bank will be able to ensure that the capital is flowing to where they want it to go,” said Yang Zhongning, Investment Consultant of Industrial Securities

Meanwhile, analysis signified that sound mechanism created to ensure the newly released liquidity is actually helping the country's real economy.