China to Help Set Up Private Banks to Support SMEs

China to Help Set Up Private Banks to Support SMEsIn a bid to boost a slow economy, China unveiled plans that will help set up more private banks to provide financial support for cash strapped smaller firms. The State Council said that they will actively develop small sized financial institutions and to further open up channels for private capital to enter the financial sector.

Guidelines were published on the official website of the Central Government and plan to promote trials by private capital to help initiate the establishing of private banks that will be responsible for their own risks along with financial leasing companies, consumer finance companies and different financial institutions. The government is also supporting the establishment of more village banks and credit companies in places were these smaller firms are concentrated.

China is trying to open up the banking sector to private investors at banks have channeled the majority of their loans to State owned firms and to local government vehicles. SMEs accounts for 60 percent of the gross domestic product in China along with 75 percent of new jobs in the country but is having a hard time coping up with the weak global demand and tight credit.

The new guidelines will encourage banks to widen credit securitization to channel more credit to smaller firms and qualified banks are allowed to issue special bonds to use in supporting smaller firms. Furthermore the government released a series of measures that will support a slowing economy which include scrapping taxes for of small firms and providing help for ailing exporters while boosting investment in railways and urban infrastructure.

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