PBOC Governor and Procurator-General announce further policy support for private enterprises

PBOC Governor Yi Gang and the Procurator-General Zhang Jun have announced more policy support for private enterprises.

PBOC Governor Yi Gang conducted an interview with several media outlets on 6th November on policies to support private companies. On the same day PBOC deputy governor Pan Gongsheng visited a local city commercial bank and discussed this issue too (this news was released on the PBOC website on the 7th).

Governor Yi said that some previous policy measures lacked consideration, co-ordination and precise execution, causing  tightening in credit conditions and contributing to financing difficulties of private enterprises.

According to the governor, going forward, when formulating policies, the PBOC will conduct more empirical research and listen to the advice from private enterprises and financial institutions; for policy that requires sound implementation, there should be a pilot scheme before full implementation, and for longer term measures, there should be transition periods (no sudden across-the-board implementation) to facilitate adjustment on the corporate side.

PBOC will also step up support for private enterprises with liquidity constraints amid lower risk-taking capacity of financial institutions.

Governor Yi announced a policy combination of “3 arrows” to support additional liquidity to the private sector, including bank loans, debt and equity financing.

Firstly, PBOC is looking into the possibility of promoting equity financing for private firms. The central bank is working with various financial institutions such as fund managers and brokerages on this initiative.

Secondly, PBOC will expand a recently launched scheme to promote private firms’ bond issuance in collaboration with financial regulators. Three companies have already raised 1.9 billion yuan of bonds with over-subscription, and 30 more private enterprises are preparing for bond issuance.

Thirdly, PBOC will add a new metric in the MPA formula to encourage lending to private companies. They will also increase the supply of long term and reasonably priced funding for financial institutions (further RRR cuts would fit this goal, in our view).

It is rare for a senior official to openly acknowledge previous policy missteps. We believe this is in response to the recent meetings hosted by President Xi, especially the one with entrepreneurs. That meeting was unique in the sense that it carried the highest political authority and at the same time was very specific in terms of the measures to be taken. As such, it likely put the onus on senior officials who attended the meeting to act in a timely manner. While the governor stated there is no change in the overall monetary policy stance, which is described as prudent, and more support for the real economy via more bond issuance had been stated previously, his comment on past policy missteps suggests a change in policy stance to us. Rather, we think the reiteration of the current policy stance should be read more as an indication that the PBOC will be measured in terms of the size of additional loosening. In terms of more tangible measures, we now see a higher probability that TSF growth will accelerate from now, but likely at a very measured pace.

Meanwhile, Procurator-General Zhang Jun said in a meeting on the same day that the procuratorate will put more effort into the implementation of law to protect the legal rights of private enterprises, according to a news release on the procuratorate’s website.

In the meeting, Procurator-General Jun emphasized what the procuratorate intends to do to support private enterprises, highlighting that: (1) It will continue to strengthen the protection of property rights and handling of property rights related cases; for specific criminal cases, it will take compulsory measures that comply with the law and consider the need to protect the development of private enterprises; (2) It will also strictly adhere to the practice of civil justice; for criminal cases that involve private enterprises, accounts and property that “should not be frozen must not be frozen”, and enforcement measures that “should not be taken must not be taken”; (3) Those who detect problems “should actively seek to correct them” to ensure normal operation of enterprises.

This move is also a response to the directions given by the president. While the protection of property rights and personal safety ultimately requires fundamental structural changes in the institutional system, the strong focus of the top leadership at least should create some assurance for private enterprises.

We expect more such official comments in the coming weeks with regard to support for private enterprises, which may help to improve market sentiment, especially among domestic investors who have been particularly bearish. But ultimately implementation still holds the key, especially structural reforms which we have yet to hear much about.