China steps up financial support for small businesses

China today announced a slew of measures including tax exemptions to support small and micro- sized businesses amid fears of a slowdown in the world's second-largest economy.
Forecasters have warned that Chinese economic growth will cool this year as China's trade growth weakened in July.
For two years starting from December, financial institutions will be exempt from value-added taxes (VAT) on income from interests for loans to small and micro-sized businesses and individually-owned businesses, the Cabinet said in a statement after an executive meeting of the State Council presided over by Premier Li Keqiang.
Currently the policy applies on loans to farmers only.

The maximum loan to each of the above-mentioned borrowers eligible for tax exemption will be raised from 100,000 yuan (around USD 15,000) to one million yuan, it said.
The current policy of exempting stamp taxes on loan contracts for small and micro-sized businesses, as well as VAT on such businesses with monthly sales of no more than 30,000 yuan, will be extended till 2020, state-run Xinhua news agency reported.

Authorities will also lower the reserve requirement ratios of commercial banks that extend a big enough proportion of their outstanding or new loans to small and micro-sized businesses, individually-owned businesses and farmers, according to the statement.

The stronger support will "help innovation and entrepreneurship, foster new growth momentum, expand employment and make the economy more vigorous and inclusive," the statement said.
It said large state-owned banks will be pushed to offer inclusive financial services at the grass-roots level, while the issuance of more financial bonds will be encouraged to fund loans for small businesses.
The development of financing guarantee agencies and re- guarantee agencies should be supported and a national financing guarantee fund should be set up as soon as possible, according to the statement.
A policy-based credit guarantee system covering provinces, cities and counties should be established within three years to support the financing of small agricultural businesses, it said.

Measures will also be taken to make it easier for startup firms to apply for interest discounts on guaranteed loans, while big data and cloud computing will be better used to help small businesses secure financial services, it said.
By the end of June, outstanding loans from financial institutions to small and micro-sized businesses reached 22.6 trillion yuan, nearly double the amount at the end of 2012 and accounting for 32 per cent of total loans to all businesses, the statement added.
Standard & Poor's slashed China's credit rating on September 21 over warnings that its ballooning debt had raised "economic and financial risks", marking the country's second downgrade in 2017.