As China Curbs Borrowing, Growth Shows Signs of Faltering

The downgrades were among many reasons the government has tightened some curbs on borrowing since the end of the autumn. Beijing has particularly clamped down on lending by online finance companies along with various other private sector businesses which bypass the state-controlled banking system.

While commercial banks have continued to lend the money they hold by deposits, these conventional loans go mainly to state-owned enterprises. Private lenders, meanwhile, charge interest rates which are double or triple the 6 percent charged by banks, although they are often the only source of financing for smaller businesses.

Despite the higher interest rates, “we should also fully affirm the significance of private loans, which are an important supplement” to bank lending inside the Chinese economy, said Mr. Yi, speaking at the Lujiazui Forum, an annual gathering in Shanghai of China’s top financial regulators. The forum, held at the start of each summer, can be one of the Chinese government’s main channels for signaling the direction of Chinese monetary along with financial policy.

Even before deciding on Thursday morning not to match the Fed’s rate increase, though, the Chinese government had already made a pair of moves which appear to have been elaborately crafted to channel more money to smaller, more entrepreneurial businesses.

At the start of which month, the central bank said which commercial banks could use some of their smaller business loans as collateral for borrowing money at low interest rates directly by the central bank. along with on April 17, the item told commercial banks which they could reduce the amount of money they set aside unprofitably as reserves, provided which they took actions which would likely leave them with more cash to lend to smaller along with midsize businesses.

Gary Liu, the president of the China Financial Reform Institute, a Shanghai-based research group, said on the sidelines of the Lujiazui Forum which China’s private-sector companies of all sizes, even large ones, had long faced challenges in obtaining loans. although the credit squeeze on them which spring has been particularly painful.

“the item’s very bad, along with we see not just smaller along with medium-sized enterprises defaulting although even big companies defaulting,” he said.