The central bank's decision on Saturday to continue supporting Chinese smaller businesses under liquidity pressure will inject greater confidence into the latter and better anchor market expectations, experts said.

The People's Bank of China confirmed on Saturday it will continue its lending mechanism that helps encourage financial institutions to lend to small businesses under pressure due to the impact of COVID-19.

The announcement said that from the beginning of this year till the end of June 2023, the PBOC will provide funds on a quarterly basis to local banks that issue inclusive loans to small and micro businesses equivalent to 1 percent of the increase in their loan balance, to encourage them to extend more such loans.

From this year, inclusive credit loans to small and micro businesses will be incorporated in the relending program for agriculture and small firms. The 400 billion yuan ($62.93 billion) relending quota previously designated for inclusive credit loans for small and micro businesses can be rolled over, and expanded if needed. Qualified local banks making inclusive credit loans to small and micro businesses can apply to the PBOC for low-cost relending financial support.

The move followed a decision made by an executive meeting of the State Council, China's Cabinet, last December to replace the inclusive loan repayment extension support tool for small and micro enterprises with inclusive loans for them.

The tool was created in June 2020 to support the large number of struggling smaller businesses by allowing the central bank to use the relending quota to buy loans from qualified commercial banks. This increased commercial banks' capacity to lend to small and micro businesses.

The PBOC has been continuously providing support to China's smaller businesses that have been reeling under the impact of COVID-19 over the past two years. It has developed new monetary policy instruments that can directly stimulate the real economy.

Wen Bin, chief analyst at China Minsheng Bank, said this monetary instrument has been continued in a timely way, and will be of great help to support smaller and micro businesses.

He further said that over the past year, smaller businesses had endured tough times. Those in the manufacturing sector in particular have been absorbing the pain of the rising cost of commodities. So, a signal of continued liquidity support will better anchor their expectations this year.

"This will also help local banks, mainly medium-sized and small banks, to better focus on serving small and micro businesses and improve their capacity to do so," he said.