Li: Reforms to reduce interest rates

Businesses' financing hurdles taken up during State Council executive meeting 

China will take market-oriented reform measures to ensure that real interest rates will be meaningfully reduced thereby resolving financing hurdles facing businesses, the State Council's executive meeting chaired by Premier Li Keqiang decided on Friday.

"Thanks to the measures taken by various sides since the beginning of this year, real interest rates have been lowered to a certain degree. While borrowing was made less expensive, the difficulty in accessing financing has become more acute," Li said at the meeting.

It was emphasized at the Friday meeting that it is important to keep liquidity reasonably sufficient and use market-oriented reform measures to lower the real interest rate.

Those attending the meeting decided to reform and improve the loan prime rate mechanism, which involves the price of loans banks offer to their best clients. To form an LPR, banks submit their prices by adding certain basis points to the interest rates of funding they receive from the central bank in the open market.

An LPR for above five years will be made available in addition to the current one-year LPR to serve as a pricing reference for new bank lending. The purpose is to catalyze further reductions in real interest rates.

"The lowering of real interest rates should be carried out in an open and transparent manner. There needs to be continuous progress in reducing financing costs to deliver tangible benefits to businesses," Li said.

The meeting pushed for more transparency in financing charges. Financial institutions' charges will be better regulated and intermediate agencies will be urged to cut fees.

A combination of monetary, fiscal and regulatory policies will be implemented to facilitate a greater role by the guarantee system to reduce financing costs facing the real economy in a concrete way. Credit and loan support for enterprises with good credit records and market potential will be enhanced.

"The central bank needs to take a multipronged approach and employ a mixture of tools to ensure meaningful reductions in real interest rates," Li said.

Evaluation and supervision are to be strengthened to guide banks in innovating businesses models and scaling up support for the real economy, easing financing woes facing small and micro businesses.

"We must earnestly address the financing difficulties of micro and small firms. Otherwise, employment may be affected given the large number of these companies," Li said.