MNI: Rigid Rates Worsen China Finance Problem: Ex-PBOC Advisor

     BEIJING (MNI) - China's recent bail out plan for private sector firms with

financing difficulties will not solve the issue longer-term as loan rates are

dictated by policy and will not encourage bank lending to private companies,

Huang Yiping, a senior fellow at China Finance 40 Forum said in Beijing

Saturday.

     Without some flexibility in the lending rates, there was no benefit for

financial institutions in lending to the private sector, said Huang, a former

member of the People's Bank of China monetary policy committee.

     The liquidity crisis across the private sector escalated as the

government's deleveraging campaign was pushed forward through 2017 and financial

regulators are now making efforts to bailout firms by launching a series of

policies. The banking regulator asked lenders to increase the portion of loans

given to the private sector to 50% of their total new loans over the next three

years. They have also called for an attempt to cut the average loan rate to

small businesses by one percentage point in the fourth quarter from that charged

in Q1. 

     Curbing interest rates via administrative orders will reduce lenders'

servicing of the private sector, Huang warned, noting it may cause fresh risks

to the financial institutions.

     "To solve the problem of financing difficulties, the first step should be

that let the market play the role of reallocating resources," Huang said.

     Huang noted that enhanced regulation has directly squeezed loan provision

from non-banking channel to the private sector, explaining that so-called shadow

banking transactions had shrunk CNY2 trillion in the first half of 2018 -- and

that was a big blow to the private sector.

     "The de-risking is necessary, but the enforcement caused pain," Huang

admitted.

     Huang suggested China could temporarily help qualified companies stuck in

liquidity trap, as they are important to social stability, innovation and

economy. However, the responsibility should on government or policy financial

institutions, not the commercial lenders, he said.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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