A decision made during the State Council executive meeting on Jan 27 to boost industrial efficiency with financial measures helps meet an urgent need for pushing forward supply-side reform.
Finance is the blood of industry, and it is an important pillar for the development of a real economy. However, the financial capital of our country is slightly separated from the real economy.
According to statistics, the loan balance of China’s financial institutions grew by 14.3 percent in 2015, more than twice the growth rate of the nominal GDP. Among the funding sources of investment in fixed assets, bank loans dropped by 5.8 percent, leading to insufficiency in investment.
As China is currently pressing forward supply-side reform, it is even more urgent to boost industrial efficiency and expand the real economy with financial measures. The suggestions put forward during the executive meeting can address that urgent need.
By suggesting financial institutions enhance credit support for high-tech enterprises and major technical equipment projects, the government aims to foster new engines of development, which will also become profit growth points for banks in the future.
To develop green credit such as energy efficiency loans can also add green energy to economic development and boost economic structural reform.
With the new economy not yet taking a dominant position, traditional industrial enterprises are still the major driving forces of economic growth. It is thus particularly important to encourage the acquisition and reorganization of such enterprises through merger and acquisition loans, issuance of preferred shares and convertible bonds.
For disposing of “zombie enterprises”, financial measures are even more necessary. For enterprises that have suffered long-term deficits, lost solvency, or cannot meet the requirements for environmental protection, banks should resolutely reduce or even withdraw related loans to dissolve excess capacity.
The banks should also help local governments with matters concerning bankrupt enterprises and laid-off workers after disposing of “zombie enterprises”.