China Watch Blog

China Watch Blog has learnt that China’s economic growth is likely to rebound after the second quarter, supported by ongoing policy fine-tuning that focuses on fiscal measures while adjusting tight controls on the real estate market, top political advisers said on Tuesday.

Shanghai Pudong TV tower

Macroeconomic policies should be continually readjusted in the following months to sustain a relatively faster growth rate, according to a proposal from the Standing Committee of the Chinese People’s Political Consultative Conference National Committee, the country’s top political advisory body.

“Fiscal policy should be really proactive, reflected in more intensified tax cuts for small and micro-sized enterprises, especially in the emerging and modern service sectors, to reduce costs and promote profits for companies,” said the proposal issued on Tuesday.

The heavy tax burden, high loan costs and growing labor costs have become the main obstacles for Chinese companies in industrial sectors, said Liu Mingkang, former chairman of the China Banking Regulatory Commission and a CPPCC Standing Committee member.

As overseas demand weakens amid the eurozone debt crisis, China’s economic expansion may decelerate to its slowest pace in three years in the second quarter, following worse-than-expected data in May, according to economists, the China Daily reported.

China Watch Blog has learnt that China’s bank regulator will ease its controls on bad loans incurred by smaller Chinese firms to encourage more banks to lend to them.

China wants to channel more bank lending towards its small- and medium-sized enterprises (SMEs), which usually face difficulties obtaining loans from banks that prefer the safety of lending to large state companies, the China Daily reported.

“We will appropriately loosen the non-performing loan ratio control for smaller firms,” the China Banking Regulatory Commission said in a statement posted on its website late on Thursday.

Although the commission did not elaborate on the extent to which it would loosen its control over sour loans, we wonder what kind of criteria the banks will impose and what criteria they will loosen. It will be quite interesting to see what happens.

But the Comission said the non-performing loan ratio for smaller firms dropped to 3.3 percent at the end of December, down from 5.3 percent at the start of 2010.

It also said that provisions made by Chinese banks for bad loans hit 218 percent in December, up 63 percentage points from the start of last year.

The regulator said it wants to ensure that loans to smaller firms grow as fast as the pace of growth in total new loans this year.

It said it would give banks incentives to sell new financial products to smaller firms and improve their credit guarantee system for these companies.

The commission said it would help smaller firms get easier access to financial services by simplifying the application process.

New loans to SMEs rose 35 percent in 2010 from the previous year, outstripping 25 percent growth in total new loans for the year, the regulator said.

It said outstanding loans to smaller firms hit 7.27 trillion yuan, or 24 percent of total loans issued to companies, but it did not provide a comparative figure.