Illustration: iStock
Illustration: iStock

It has taken China just four days to react. Faced with trade disputes on two fronts, a concerted government campaign on debt and a slowing economy, Beijing has rolled out concrete measures to help small business, particularly in the tech sector.

Late on Sunday, the People’s Bank of China announced it would cut the reserve requirement ratios, or RRR, for leading banks by 50 basis points in early July, accelerate the pace of debt-for-equity swaps, and stimulate lending to small and micro companies.

“The move is an implementation of decisions made at a State Council executive meeting,” the PBOC, the de-facto central bank stated. “Funds released by the cut were about 700 billion yuan (US$108 billion), with 200 billion yuan set for easing credit strain for small and micro businesses,” it added in a report by Xinhua, the official news agency.

The decision comes at a time when Beijing is embroiled in a tit-for-tat trade war with Washington with the White House threatening to impose another round of tariffs worth up to $450 billion on Chinese imports.

At the heart of the dispute is the ballooning deficit between the US and China, as well as concerns about intellectual property rights in high-tech industries. Last month, the figure swelled to $24.6 billion while from January to March it was $58 billion.

Trade deficit

In 2017, the US trade deficit hit a record $375.2 billion with the world’s second-largest economy importing American goods worth $129.8 billion compared to exports of $507.4 billion, US data showed.

Coupled with the US spat is the on-going row with the European Union. Last month, the EU launched legal proceedings against the country at the World Trade Organization about “intellectual property” violations.

Since then, the bloc’s Chamber of Commerce in China has complained that Beijing continues to drag out the process to increase access to foreign companies, despite President Xi Jinping’s “promise” to further open up markets.

In its annual survey, the EUCCC reported that doing business in the dragon economy had become more challenging during the past year as companies face regulatory barriers, market-access restrictions and unequal treatment.

“The European Chamber urges China to follow through on its promises of reform and opening-up that have been repeatedly stated since President Xi’s speech to the World Economic Forum in January 2017,” the business group, which represents more than 1,600 foreign firms, stated in the report.

“While some of these pledges have been written into legislation, European companies have yet to see much real concrete implementation,” it added.

On the domestic front, small Chinese companies have been squeezed in Beijing’s war on cheap credit and the policy to control corporate, local government and consumer debt.

Increased costs

In a move to aid small and micro firms, another 200 billion yuan will be made available from postal savings banks, city and non-county rural commercial lenders, and foreign banks.

This, in turn, will help offset increased costs and a sluggish economy following weaker growth data for May.

“Vigorous efforts must be made to improve the accessibility of affordable financing for small and micro businesses,” Premier Li Keqiang said in a statement released after last week’s State Council executive meeting.

“The banking sector must implement policy measures in a well-coordinated way to reduce financing costs for businesses,” he added. “Small and micro businesses are leading job providers, and many of them have strong potential for growth. Their robust development will help achieve high-quality growth and improve people’s wellbeing.”

Still, this could be just the start of policy measures to ease the pressure on sections of the Chinese economy which are being buffeted by unpredictable global headwinds.   

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