THE government plans to allocate 2 billion yuan (US$290.16 million) to a low-tax pilot program to bolster small and medium enterprises (SMEs) in urban areas, Xinhua said yesterday.

With recent closures of peer-to-peer lending platforms — which often financed SMEs — smaller firms have found it increasingly difficult to source funds as the economy continues to slow.

The new pilot program is overseen by the Ministry of Finance, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, the People’s Bank of China and the China Insurance and Banking Regulatory Commission, said Xinhua, citing an anonymous source from the finance ministry.

The program will cover 60 cities for three years from 2019 and will help reduce tax and fees for SMEs, Xinhua added.

Chinese banks have extended more loans at lower interest rates to small firms in the first quarter of the year, heeding the government’s call to support the economy, according to banking regulators. The amount of outstanding loans to small enterprises at China’s five largest State lenders rose to 1.99 trillion yuan by the end of March, up 17 percent from the end of 2018, figures from the China Banking and Insurance Regulatory Commission (CBIRC) showed.

The growth rate of their small business lending outpaced the average loan growth rate by 12.4 percentage points, the CBIRC said.

Small businesses’ borrowing cost also dropped over the first quarter, with the banking sector’s average interest rate for such loans lowered to 6.87 percent in the first quarter industry-wide, from 7.39 percent in 2018.

To spur economic growth and lift market confidence, China is pushing large banks to significantly boost lending to small businesses by at least 30 percent this year, but the move is raising concerns about the risks of looser lending standards and a further jump in bad loans.

The biggest banks had met 55 percent of their annual targets for small companies by end-March, regulators said, adding that the average interest rate was as low as 4.76 percent, down 0.13 percentage point from the fourth quarter last year.

China is also promoting a new loan product that uses companies’ credit history and tax records to increase banks’ ability to access small businesses’ creditworthiness, according to the National Development and Reform Commission.(SD-Agencies)