Financial institutions should be guided to further support businesses with favorable policies to help stabilize the fundamentals of the Chinese economy, Premier Li Keqiang said at the State Council executive meeting on June 17.

To cope with any economic shocks from the COVID-19 epidemic, the financial system has adopted a raft of measures this year, such as cutting the reserve requirement ratio (RRR), increasing re-lending and re-discount quotas, and pushing down real interest rates, the Premier said.

They paid off, with the amount of yuan loans between January and May rising from the same period last year and overall financing costs for enterprises seeing declines, data show.

Given the epidemic’s impact, the mix of policies should give consideration to both short-term and long-term development, Premier Li said.

Alongside proactive fiscal policies, especially those meant to tackle difficulties at enterprises and energize the market, ensuring six priorities and stability in six fronts also requires stronger monetary and financial policies to shore up the real economy.

It will help enterprises, micro, small and medium-sized enterprises in particular, get through this hard time, in pursuit of shared survival and prosperity between financial institutions and enterprises, Premier Li said.

Interdependent financial institutions and enterprises

Financial institutions and their corporate clients rely on each other to survive and thrive, the Premier said, adding that banks would struggle to pay interest on deposits and make a profit if the pandemic-affected companies in manufacturing and services cannot stay afloat.

Financial institutions should recognize such interdependence and the importance of offering a hand to enterprises hard-hit by the epidemic, which also concerns the development of the financial sector, he said.

This year, financial benefits to all types of companies are expected to total 1.5 trillion yuan (about $212 billion), according to the meeting. To this end, it demanded efforts to reduce the lending and bond rates, issue concessional-rate loans, defer payment of principal and interest on loans for micro, small and medium-sized enterprises, and support the issuance of no-collateral loans to micro and small firms, and lower fees charged by banks — all echoing the Government Work Report.

As the virus outbreak has brought unprecedented shocks and challenges to China and around the world, the country should, with a keen awareness of the severity of the current situation, put itself on solid footing by securing market entities, especially the micro, small and medium-sized enterprises that provide massive jobs in a wide range of areas.

Offering appropriate financial benefits holds the key to protecting them and steadying economic fundamentals, he added.

Reasonable profit relinquishment to keep capital flows on right track

Premier Li said financial institutions should be guided to reasonably give up some profits for enterprises.

Abiding by market rules, the government should improve policy tools and related mechanisms that support direct capital flows toward enterprises in a timely manner.

With sound protection and control measures taken, newly added financial funds will flow into the manufacturing sector, general service sectors, and micro, small, and medium-sized enterprises, in an effort to bring out timely assistance into full play.

A slew of integrated tools, including deposit reserve ratio reduction and relending, should be used to keep the market running smoothly, ease fund burdens on enterprises, and increase the added amount of renminbi loans and social funding scale year-on-year.

In the meantime, pre-research and post-judgment should be enhanced during policy implementation. The government should keep track of the flow of newly added funds, the Premier said.

He said that reasonable profit relinquishment by financial institutions should neither change hands among banks nor off-track flows. And financial risks should be prevented.

Pragmatic financing cost reductions to support enterprises

Profits at enterprises of all sizes are dropping. The financial sector should further increase support in this field to help enterprises by reducing financing costs in a pragmatic way, the Premier said.

He said that related mechanism should be further improved to step up the power and impetus of financial services for micro, small, and medium-sized enterprises.

It was decided at the meeting that capital base of small and medium-sized banks will see reasonable supplements.

And banks will be urged to improve internal assessment and promote the significance of all-inclusive finance.

Efforts will be made to rigorously write off non-performing loans. And loans will be issued with no strings attached.

The effect of financial bailout policies comes down to the reduction of comprehensive financing costs to enterprises and ease of difficulty in loans for micro, small, and medium-sized enterprises.

The Premier said that not only the financial system, but also third parties, especially the market entities, are entitled to have their voices heard.