The China Banking and Insurance Regulatory Commission announced on Monday it has issued a notice of further promoting financial services to support high-quality development of China's manufacturing sector.

According to the notice, local offices of the CBIRC, banks and insurance companies should optimize the allocation of resources and promote continuous and fairly rapid growth of medium- and long-term loans for the manufacturing sector.

Banks are urged to step up financial support for the advanced manufacturing segment, strategic emerging industries, and the transformation and upgrading of traditional industries, and offer innovative financial products and services.

The CBIRC said banks should also focus on weak links in the development of the manufacturing sector, give assistance to businesses that face temporary difficulties due to the impact of COVID-19 but had good credit scores before the pandemic, avoid withdrawing or reducing loans to such businesses, and surrender part of banks' profits to manufacturing companies as appropriate.

In past decades, the manufacturing sector took a key position in China's economic development and the shaping of its global competitiveness. Its all-around advantages in complete supply chains, higher quality and lower costs, compared with the manufacturing sector in other countries and regions, are further highlighted during the COVID-19 pandemic, said Zeng Gang, deputy director-general of the National Institution for Finance &Development.

"Looking forward, China will further optimize the structure of its manufacturing sector, enhance the quality of the sector, and make transitions from labor-intensive to technology-intensive manufacturing, from low-end to high-end manufacturing, and from energy-intensive to low-carbon manufacturing. The transitions, supported by financial products and services, will foster China's core competitiveness during the 14th Five-Year Plan period (2021-25) or an even longer period," Zeng said.

Financial institutions should strengthen their understanding of industries and industrial chains to provide financial services, such as supply chain finance, create new business models based on the features of industrial finance, and provide a package of financial services for manufacturing businesses, he said.

The manufacturing purchasing managers' index for small businesses, an indicator of manufacturing activities, rose from 46.7 in May to 48.6 in June, according to the National Bureau of Statistics. PMI readings below 50 point to contraction.

"The effects of the COVID-19 pandemic on micro and small enterprises have been fairly huge. As small businesses are still facing challenges, China will continue to give them financial support through a number of measures, including loan extensions, refinancing small business loans, and increasing the proportion of unsecured loans and the proportion of first-time borrowers," said Wen Bin, chief economist at China Minsheng Bank.

"China is currently implementing countercyclical regulation of its financial sector. Procyclical regulation, which means banks will increase lending when the economy is in good shape but reduce lending otherwise, is bad for financial stability and the safety of banks' asset quality. By taking countercyclical regulatory measures, we will maintain a stable market and lower risks in the banking sector," Wen said.

The newly released regulatory notice will guide credit resources to the sector that needs loans most, thus giving directions for financial institutions to serve the real economy, said Du Yang, a researcher with the BOC Research Institute.