Central bank measures in line with Party report's stress on real economy

A series of relending facilities introduced by China's central bank will play a crucial role in stimulating growth in business loans in the fourth quarter to keep the economy running within a reasonable range, experts said.

"With the continuous expansion and intensification of structural monetary policy tools, China will guide financial institutions to provide targeted support for key fields and weak links of the economy, thus improving the quality and efficiency of the financial sector in serving the real economy," said Du Yang, a researcher with the BOC Research Institute.

Since the beginning of this year, People's Bank of China, the central bank, has set up relending facilities to support equipment upgrading and renovation, scientific and technological innovation, all-inclusive eldercare services, and the transport, logistics and storage sectors.

The latest special relending facility worth over 200 billion yuan ($27.67 billion) was announced on Sept 28, with an interest rate of 1.75 percent and a term of one year. The PBOC will provide low-cost funds for 21 financial institutions through the facility to guide them in issuing loans at an interest rate of no more than 3.2 percent to help manufacturers, providers of social services and some other businesses upgrade their equipment.

"In pursuing economic growth, we must continue to focus on the real economy," said the report to the 20th National Congress of the Communist Party of China, delivered on Sunday.

China CITIC Bank, a national joint-stock commercial lender, said its branch in Changsha, Hunan province, granted a loan of 33.5 million yuan to a listed private company in Hunan on Monday for the purpose of upgrading medical equipment.

Large State-owned commercial lenders like Agricultural Bank of China took similar actions. ABC's branch in Qinghai province offered a loan of 200 million yuan to Qinghai University on Oct 7 at a lending rate of 2.5 percent to support equipment upgrade.

Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co, said: "The PBOC has injected liquidity to targeted financial institutions and sectors since the beginning of this year by launching several structural monetary policy tools. As a result, it has optimized the financing structure while promoting steady growth of overall credit volume."

Highlighting the proactive role that structural monetary policy tools will play in promoting the transformation and upgrade of China's economy, Dong said: "In the next steps, China should further guide the flow of loans and improve the efficiency of fund utilization to better support the recovery of the real economy. The country should also help companies hard hit by COVID-19 walk out of the woods as soon as possible, in an effort to stabilize market confidence and expectations."

In the third quarter, the overall loan demand index was 59 percent, up 2.4 percentage points from the previous quarter, said the PBOC in a quarterly banker survey report released on Oct 9.

The loan demand index of the manufacturing sector stood at 60.6 percent, up 1 percentage point from the previous quarter; the loan demand index of infrastructure was 61.3 percent, up 2.9 percentage points from the previous quarter, the report said.

Experts estimate that renminbi loans will continue to grow rapidly in the fourth quarter, and the increase in business loans is expected to be larger than that of the same period last year.

"Looking ahead, financial institutions will keep strengthening support for the real economy, and the growth of credit issuance will remain steady in the fourth quarter," said Du with the BOC Research Institute. "In particular, China will continuously increase medium-and long-term loans to the manufacturing sector and deepen the implementation of innovation-driven development strategy."

China, he said, will foster leading companies in the high-end manufacturing sector through a number of measures like optimizing lending rates and creating green channels for loan approvals.