China Cuts Interest Rates While Ignoring Small Private Businesses

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China and interest ratesThe People?s Bank of China has reduced commercial banks? interest rates for the second time since November of 2014 offering the lowest rates available since 2010. These two loan interest rate cuts within the past four months have been the efforts being made by Chinese officials to support economic growth throughout China.

Unfortunately, Chinese small businesses are not being offered a chance to enjoy the benefits of these interest rate cuts and only large corporations and state-owned companies are being benefited. These state-owned companies are obtaining these lowered interest rate loans in order to refinance their existing debt ? not to make new investments that would presumably spur the privately held small business community.

The private small and midsize companies that create most of the new jobs in the world?s second largest economy have largely been left out in the cold. Although larger, state-run companies, have been improving in the economy, a HSBC Holding study revealed a pause in the business operations of small manufacturers, per an official Chinese manufacturing report of progress released April 1st.

?The rate cuts since November [2014] haven?t been really effective,? opines UOB Kay Hian Holding economist Chaoping Zhe to the Wall Street Journal. ?Liquidity remains tight and private businesses are being squeezed by SOEs [state-owned enterprises] that still have the privilege of accessing cheap capital.? It is reported that most believe that the Chinese government is not interested in increasing private enterprise in the country. The government has a bias toward its state-run companies and government owned banks and tends to want these state-owned enterprises to reap the benefits of new governmental policies.

Big banks in China have been advised by the China Banking Regulatory Commission to offer small to medium enterprises (SMEs) loans in an effort to boost the economy. However, China?s banks are cautiously learning that lowering loan rates for SMEs will reduce their profits and, therefore, China?s banks are opting to service state owned enterprises (SOEs). SOEs are China?s banked upon and preferred long term clients. Observers note the shortfall of the Chinese government?s proactive steps to encourage banks in China to increase their lending to small businesses.

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