China boosts business funding reform
(19 August 2019 - China) The People’s Bank of China (PBoC) has announced a highly anticipated reform to its interest rate setting mechanism in a shift designed to lower financing costs for corporates grappling with stagnating growth.
The new interest rate setting system replaces existing benchmark interest rates with the 'Loan Prime Rate' based instead on global bank lending prices as a reference for banks in pricing new loans. Policy makers are seeking to substantially lower borrowing costs for Chinese SMEs hardest hit by the economic slowdown and generally limited in terms of access to reliable and affordable funding sources in contrast to larger state owned corporates.
“By reforming and improving the formation mechanism of LPR, we will be able to use market-based reform methods to help lower real lending rates” the PBoC said in a statement.
"The change will likely increase the efficiency of the central bank’s monetary policy" stated Huatai Securities Analyst Chen Shujin, cautioning that this move alone wouldn’t resolve all the funding problems faced by small businesses who also struggle to access bank credit.