Feb 28

China Watch Blog has learnt that small businesses could be the most at risk from this year’s tightening policy, despite regulators’ pledge to increase loans to them.

Analysts said China shifted its monetary policy from accommodative to prudent this year to tame inflation and ward off assets price bubbles, resulting in a smaller supply of available credit.

Against this backdrop, China’s top banking regulator said it will ease its bad loan control on small businesses to encourage banks to lend to them. Some small businesses find it difficult to get loans due to their lack of credit history and small-scale activities.

Liu Ligang, an economist with Australian firm ANZ, said a tide of bankruptcies in small businesses could be seen at the end of this year, due to rising costs and rising default risks.

The China Banking Regulatory Commission reiterated on Thursday that it wanted credit extended to smaller businesses to exceed the growth of total credit.

Economists said they expect this year’s new credit to be about 7 trillion yuan (US$1.064 trillion), down from last year’s beyond-target 7.95 trillion yuan.

“Credit growth is slowing down after a raft of tightening measures recently,” said Hu Yuexiao, a Shanghai Securities Co analyst. “Regulators have also squeezed the credit supply by asking banks to put aside more provisions against potential sour assets.”

Hu said he expect banks to extend 600 billion yuan of new yuan-backed credit in February, down from January’s 1.04 trillion yuan.

In 2010, new loans to small businesses increased 35 percent, outpacing the 25 percent growth in total new loans.

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