China to boost financial support for small businesses

HONG KONG (Reuters) - China's cabinet said on Wednesday that it will take a number of measures, including tax exemptions and targeted reserve requirement ratio cuts, to encourage banks to support small businesses.

Financial institutions will be exempt from value-added taxes (VAT) on income from interest for loans to small and micro-sized businesses and individually-owned businesses for two years from Dec. 1, according to a statement released after a cabinet meeting.

The maximum loan to each of the above-mentioned borrowers that is eligible for tax exemption will be raised to 1 million yuan ($150,000) from 100,000 yuan, it said.

Authorities will 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, it added.

The government will also strengthen policy and financial support for small and medium-sized companies, including stetting up a state financing guarantee fund. ($1 = 6.6416 Chinese yuan renminbi)

(Reporting by Twinnie Siu; Editing by Robin Pomeroy)