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Chinese central bank loosens eligibility criteria for small business lending

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Chinese central bank loosens eligibility criteria for small business lending

China's central bank widened its definition of small- and micro-sized enterprises to companies with bank credit lines of less than 10 million yuan, in another move to encourage lending to small businesses in the country.

The People's Bank of China said Jan. 2 that starting in 2019, companies with credit lines of up to 10 million yuan will fall under the category of small- and micro-sized enterprises, up from 5 million yuan previously. The move will encourage financial institutions to better meet the financing needs of small- and micro-sized enterprises, the central bank said.

Banks that extend up to 1.5% of their lending to small businesses can qualify for an additional 50-basis-point cut in their reserve requirement ratio, and are eligible for an even larger reduction if lending to small businesses make up even more of their portfolio.

The central bank last cut the reserve requirement ratio for banks in October 2018, the fourth reduction in that year.

Chinese authorities have called for banks to lend more to small companies and struggling-but-promising businesses, as well as to increase the proportion of new corporate loans extended to private companies. Small corporates in China have felt the bulk of the country's crackdown on shadow banking as they have traditionally relied on these shadow banking sources to fund their operations.

In December 2018, China's State Council announced a series of measures to boost support for small businesses, including promising to remove minimum registered capital requirements and all limitations on the equity structure of privately owned companies, as long as they invest in certain sectors.

As of Jan. 2, US$1 was equivalent to 6.86 Chinese yuan.