China's triple-R cut to ease credit access for SMEs

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02:16

China’s 0.5 percent cut in the reserve requirement ratio is expected to inject more than 700 billion yuan (105 billion US dollars) into the economy, with 200 billion yuan (30 billion dollars) going towards supporting small and medium sized enterprises (SMEs).

A survey by China's central bank the People's Bank of China (PBOC) shows the demand for loans by SMEs in the first quarter of the year increased by four percent year-on-year, to a three-year high. Analysts say that the triple-R cut is expected to make it easier for smaller companies to get the loan they badly need.

“Commercial banks will have a bigger motive to serve more SMEs. Earnings of the SMEs may not be very high, so it's risky to lend money to them. But they will have easier access to loans after the reduction in the reserve requirement takes effect,” said Song Jie, general manager of G&E Human Resources Consulting.

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Besides, the Ministry of Industry and Information Technology has pledged to improve the employment environment in small and medium sized companies by 2020. It is hoped that Chinese SMEs will provide eight million new jobs every year.

Therefore, the reduction is also expected to add a dose of energy to the jobs market, as 99 percent of all companies in China are classified as small or medium sized.

“If they can get more loans it may help small entrepreneurs boost productivity and profitability. If they have cheaper loans, it's easier for them to expand their business and hire more people,” said Li Liuyang, chief analyst of China Merchants bank.

With increasing demand for loans, experts expect more monetary policies to come to support SMEs in the second half of this year.