SMEs Still Dying for Credit

China's economy is under pressure with deleveraging efforts, a cyclical (policy?) real estate slowdown, depreciating yuan and growing trade frictions. SMEs suffered during prior downturns/deleveraging efforts and they're suffering again. They relied on credit that was downstream of shadow bank lending. Banks don't want risky loan on their balance sheets though, so instead of shifting the source of credit, it's dried up.

Despite much focus on the needs of SMEs and several State Council meetings chaired by Li Keqiang centered on the issue, there's no help on the way. What's more, the government is making life even more difficult for SMEs. Last month social security reform was added to the list of worries. Many firms and their employees (easily one-third, possibly far higher) could see their incomes slashed in 2019 because they've been under reporting income to local social insurance departments. Next year, they'll pay the proper rate and begin making up past under payments.

Reuters: Lost in transmission: China's small firms get more loans on paper but not in reality
But in reality, banks’ loan eligibility requirements for small and medium-sized enterprises (SMEs) remain stringent, making it too difficult or too expensive for them to borrow, according to bankers and company executives.

That has forced some small firms, including exporters, to simply give up on borrowing and put investment plans on hold.

The health of millions of small firms, most privately owned, is crucial to China’s efforts to ward off a sharp slowdown and mass job losses while fighting a bitter trade war with the United States.

...Total new loans in the first eight months jumped nearly 19 percent from a year earlier to 11.76 trillion yuan, the latest central bank data showed. That is well on track to set a new full-year record, eclipsing last year’s 13.53 trillion yuan.

But the increased lending barely compensates for shrinking “shadow” loans, one of the major targets of regulators as they seek to curb systemic financial risks.

Off-balance sheet loans used to be a major source of funding for small firms traditionally shunned by the big state banks.
Prior coverage:

Chinese SMEs Can Only Survive Through Tax Evasion, Social Security Reform Could Be Killer
China's SMEs Cannot Obtain Low Cost Credit, Can Li Keqiang Finally Save Them?
Li Keqiang Losing War on Financing Costs; 70% of SMEs Have Seen Financing Costs Rise in 2015
SMEs Wonder Not How to Live, But How To Die As Borrowing Costs Spike

No comments:

Post a Comment