Burton Mills - China to Help Private Firms Raise Funds

Burton Mills - China to implement measure to help private enterprises as economic growth slows.

As growth in the world’s second-largest economy cools to a rate not witnessed since the financial crisis ten years ago, Burton Mills analysts say China has promised to launch more programs to support private businesses. The government will implement measures aimed at helping companies to raise capital.

Traditionally, commercial banks have preferred to offer loans to state-owned businesses as opposed to private enterprises which have always been seen as less worthy of credit.

Access to funds via loans for private companies was further reduced when China launched a campaign to combat a growing amount of corporate debt and off-balance sheet loans which have been the primary source of financing in the private sector.

Burton Mills economists say the obstacles facing companies in the private sector are one the reasons economic growth in China is slowing. GDP growth in the period from July to September slowed to its slowest rate since the financial crisis a decade ago.

This year, China’s central bank has made a concerted effort to encourage commercial banks to extend credit to private businesses but has not yet resorted to implementing large-scale credit stimulus amid concerns that it would set back progress made in reducing risky lending practices.

Burton Mills analysts say the PBoC has stated that it will offer initial capital to banks that would help to improve the credit profile of private businesses facing temporary liquidity issues but otherwise operating well.

Over the last several weeks, the Chinese government has pledged its support to private businesses. In China, the private sector contributes to almost two-thirds of China’s GDP and provides as much as 80 percent of jobs in urban regions.

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Source: Burton Mills