The Central Bank of China said that the economic damage from the coronavirus pandemic was stronger than expected, and that additional monetary policy measures were needed.
Pan Hongsheng, deputy head of the People’s Bank of China (NBK), said at a press conference in Beijing that new instruments to stimulate bank lending to small businesses are a short-term political agreement, not a form of quantitative easing.
Earlier, the regulator announced that it would begin to redeem bank loans provided by local lenders to small firms in order to try to encourage banks to issue loans to small enterprises in the amount of up to 1 trillion yuan ($140.44 billion).
The plan provides for the use of 400 billion yuan ($56 billion) from a separate program for the purchase of 40% of unsecured loans to small and medium-sized enterprises with a maturity of at least six months. Commercial lenders will need to repay the loans back in a year. Lenders will continue to receive interest payments from the borrower, while the Central Bank will not take credit risks. The plan could increase unsecured bank loans to small businesses by 1 trillion yuan.
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