CHINA> National
Industrial dynamic crucial against economic slowdown
(Xinhua)
Updated: 2008-12-08 07:20

But many local officials and enterprises confessed that the domestic financing environment was not really improving as commercial banks tended to issue loans sparingly in the difficult times for fear of bad debts.

"We've seen a general guideline that banks should lend more to small and medium-sized enterprises. But without specific measures from commercial banks, the policy can hardly be implemented," said Tu Qinhua from Jiangxi.

Yuan Wentao, secretary of the Yanshi City Committee of the Communist Party of China in Henan, echoed that after shareholding reforms, China's major commercial banks (Industrial and Commercial Bank of China, China Construction Bank and Bank of China) had all gone public and changed from "solely state-owned" into "having a diversified ownership".

"That means banks would no longer bow to government orders," he said.

An insider of the banking industry said that commercial banks' in-house evaluation system held loan officers responsible for every non-performing loan they had granted. As a result, few loan officers would risk losing their jobs to help a company that fell into financial difficulties but had a good market prospect.

But there are people who advocate banking prudence. Unlike the Western economy which slipped into recession after the collapse of financial markets, China's concern should be the other way around because the country's weakening tangible economy may hit its banking system which might lead to more serious trouble, they say.

To remedy the situation, the State Council, China's Cabinet, held an executive meeting on Thursday, deciding to stimulate the "credit distribution enthusiasm" of commercial banks through "optimized supporting policies" and "innovative mechanism".

To be specific, local governments were encouraged to channel fiscal input into credit guarantee companies to help activate the money-lending of commercial banks. Moreover, tax break will go to private credit guarantee companies servicing small and medium-sized enterprises.

Yuan Wentao thought this measure "viable" but contended that credit guarantee should utilize more social funds to avoid the concentration of credit risk to governments.