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China to set up more private banks to help small firms

(Reuters) – China’s cabinet has unveiled plans to set up more private banks to boost financial support for cash-starved smaller firms, in the latest bid to bolster the slowing economy.

A news vendor walks with a bicycle at the Central Business District in Beijing
A news vendor walks with a bicycle at the Central Business District in Beijing July 9, 2009. REUTERS/Jason Lee

“We will actively develop small-sized financial institutions and open up the channel for private capital to enter the financial sector,” the cabinet said in a set of guidelines published on the central government’s website:

“We will promote trials by private capital to initiate the establishment of private banks responsible for their own risks, as well as financial leasing companies and consumer finance companies and other financial institutions.”

The government will support the establishment of more village banks and credit companies in areas where smaller firms are concentrated, according to the guidelines.

Beijing has been trying to open up the banking sector to private investors as state banks have channeled the bulk of their loans to state firms and local government vehicles.

China Minsheng Banking Corp. (600016.SS), is the only private bank among the country’s 10 largest commercial lenders.

Small- and medium-sized enterprises (SMEs) account for 60 percent of China’s gross domestic product and some 75 percent of new jobs created in the country, but they are struggling to cope with weaker global demand and tight credit.

Under the guidelines, banks will be encouraged to widen credit securitization to help channel more credit to small firms and qualified banks will be allowed to issue special bonds and use the proceeds to support smaller firms, the cabinet said.

Banks are encouraged to tolerate higher non-performing loans when they lend to smaller firms, it added.

The government has announced a series of targeted measures to support the slowing economy, including scrapping taxes for small firms, offer more help for ailing exporters and boosting investment in urban infrastructure and railways.

(Reporting by Kevin Yao; Editing by Kim Coghill)

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China to set up more private banks to help small firms

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