BANKS in China have been told by the government to lend more to small companies to help shore up flagging economic growth amid an escalating trade dispute with Washington.

The central bank said late Sunday it had released 750 billion yuan (US$109 billion) for additional lending by reducing bank reserve requirements by 1 percent. It said the money was for small enterprises — the official term for private firms that generate new jobs and wealth.

The trade dispute with the United States is adding to downward pressure on an economy that already was forecast to cool after China tightened lending controls to rein in a debt boom.

The Asian Development Bank said China’s economy is expected to expand at a 6.6-percent annual pace this year but slow to 6.3 percent in 2019.

The China Banking and Insurance Regulatory Commission (CBIRC) has previously told banks to “significantly cut” lending rates for small firms.

The bank regulator also asked banks to increase real-time monitoring of lending rates.

The deleveraging campaign, aside from gradually pushing up borrowing costs for the corporate sector, has restricted companies from tapping alternative, murkier funding sources such as shadow banking.

China’s central bank does not disclose lending rates for small businesses. The weighted average lending rate for the non-financial corporate sector was 5.96 percent in March, according to the latest monetary policy report.

Private companies and small businesses, whose financing costs tend to be much higher than those for large State firms, have suffered the most in the strained liquidity conditions.

Recent official surveys also show that tight funding has hit smaller manufacturers.

During high-level government meetings, Premier Li Keqiang has repeatedly urged that banks effectively lower financing costs, especially for small businesses and the agricultural sector.

Chinese banks were also told to keep asset quality and overall costs of their small business lending at a reasonable level.

(SD-Agencies)