CHINA’S policymakers, faced with a slowing economy and growing pressure on the banking system, have decided it’s time for the nation’s stock and bond markets to play a bigger role in funding companies. Less than 25 percent of China’s US$2.9 trillion in financing last year was from bond and equity sales, central bank data show. That’s not good enough, according to senior officials, who are looking for ways to improve businesses’ access to cash without adding too much risk to the financial system. “We need to create a strong capital market,” Guo Shuqing, the country’s chief financial regulator, said at the National People’s Congress (NPC), China’s top legislative session which wrapped up last week. “We could do more work especially in the capital market — stock market, bond market — for direct financing.” China is trying to transform how it funds its economy after decades of relying on banks that benefit from the implicit backing of the nation’s treasury — but tend to direct most loans to other government-owned firms. The difficulty that small and private firms have in securing funding was one reason for an explosion of shadow banking, and the rapid increase in debt and risk that came with it. Spurred to act by a record US$34 trillion debt pile, authorities in recent years have cracked down on risky loans, squeezing businesses that relied on such funding. While leaders including Guo have called on the banks to do more to finance private companies, lenders are grappling with their own concerns about loan quality and default rates. Even so, outstanding banks loans in China have increased by about 27 percent since 2016, while capital market funding rose by around 15 percent. “We shouldn’t put all the pressure on banks,” Xu Kuijun, an NPC delegate and vice president at Bank of China Ltd. in Shanghai, said in an interview at the sidelines of the gathering. “We have to rely more on direct financing, and capital markets should do more.” The changes are aimed at increasing the pool of money in equities and bonds as well as stimulating a more active market — in theory, making it easier for small companies to raise funds. Policymakers have also promised to further open the financial sector to the global economy. Authorities are approving majority foreign control for onshore financial services ventures. (SD-Agencies) |