|CENTRAL BANK SEEN FUELING OLD CHINA AS BANKS HOLD KEY TO POLICY SUCCESS|
Aruba, November 24, 2014 - China’s central bank said its surprise move to cut interest rates for the first time since 2012 is designed to help small firms and protect depositors instead of all-out monetary easing. How the nation’s lenders respond will determine if it works out that way.
The bulk of bank debt in China is still concentrated on big borrowers, with outstanding credit to small firms less than a third of total loans. The People’s Bank of China’s rate cuts came after months of targeted measures failed to lower financing costs for smaller companies.
Since its last move in July 2012, the PBOC has sought to keep growth ticking over while reducing debt expansion and increasing scrutiny of the shadow banking industry. The switch to broad-based stimulus risks a step back if lenders return to old habits of channeling loans to state-owned firms rather than more productive private enterprises.
“It may help local governments and state firms that borrow from banks, it may not help a great deal to firms that borrow from other parts of the financial system,” said Mark Williams, Capital Economics Ltd.’s chief Asia economist in London. “So the net result will be that big state-owned companies are somewhat better off.”
Outstanding bank loans to small businesses were 14.6 trillionyuan ($2.38 trillion) at the end of September, or 29.6 percent of total outstanding corporate bank loans, PBOC data showed. Private small businesses typically have limited access to raise money through bond or stock markets.