Dr. Chen Hongtian: Anticipating Improvements in Credit Lending Policy Initiatives

2020.07.14

The Guangzhou Enterprise Refinancing Service Centre was established in June 2020 to provide preferential rates, efficient and convenient refinancing services for micro, small and medium-sized enterprises in Guangzhou. The centre has reduced the pressure that businesses face when refinancing their loans, and supports all micro, small and medium-sized enterprises in the city to resume work and production operations.

It is common knowledge that the greatest challenge in business operation lies in financing. Entrepreneurs loathe the existing rollover loan policy of "getting new loans for repaying old ones". As a result of this policy, the chain of funding for many businesses has been cut off, leading to bankruptcy and businesses shutting down.

The loan policy of "getting new loans for repaying old ones" poses serious issues to businesses, and Shenzhen's business community has reflected the situation to the relevant authorities in various ways over the past few years. The business community has appealed to the authorities to address this problem that is restrictive to the development of enterprises.

In February this year, 28 prominent Shenzhen-based entrepreneurs and members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC) penned an urgent report addressed to the Shenzhen Municipal Committee. The letter urged for special measures to be implemented in this unique and unprecedented period, to handle issues faced by Shenzhen businesses, such as the repayment of principal and interest on loans.

At the beginning of the year, businesses were caught off guard in light of the impact of the epidemic. On the 1st of March, five departments and commissions under the State Council jointly issued the "Notice on Implementing Temporarily Deferred Repayment of Principal and Interest for Loans to Micro, Small and Medium-sized Enterprises". The measure provided businesses with arrangements for temporarily deferred repayment of the principal within a specified time limit through loan renewal or refinancing or other means.

The Hong Kong Government has also introduced similar policies at the same time, with banks in Hong Kong taking the initiative to issue letters to businesses, to inform them that payment of principal can be deferred if interest is paid.

Despite facing adverse economic conditions since the start of the epidemic, the business sector has been receptive to the government's call, such as making no retrenchment or salary reductions, grace periods on rent, and donating to areas hardest hit by the epidemic. While enterprises have been active in heeding the government's call, certain banks' responses have been lukewarm. Compared to the banking industry in Hong Kong, there exists a wide gap in the financing environment of the two places.

In 2017, the Shaanxi Mian County municipal government initiated the establishment of an emergency refinancing service company targeted at SMEs, to provide relief for businesses in refinancing their loans. In 2018, the Hebei Banking Regulatory Bureau issued the first national "Guidance on Supporting Banking & Financial Institutions in Providing Refinancing for Small & Micro-Sized Enterprises", giving the "green light" to the provision of refinancing facilities for small and micro-sized enterprises. In 2019, an emergency working capital fund was set up in Hubei province's city of Yichang, to help over 400 businesses obtain more than $30 billion in refinanced loans. As exemplified by the above countermeasures introduced, many municipal governments have recognised the adverse impact on businesses caused by the rollover loan policy of "getting new loans for repaying old ones".

Amidst the ongoing epidemic, SMEs are struggling to survive as they face the challenge of financing difficulties. Shenzhen, as the trailblazer of China's reform and opening up, is constantly improving its business environment. Thus, it is imperative that the rollover loan policy of "getting new loans for repaying old ones" is addressed, as the business community anticipates Shenzhen to continue leading the charge in finding a breakthrough to resolve this problem.

- Dr.Chen Hongtian, a member of the CPPCC National Committee, a Justice of the Peace appointed by the HKSAR, Chairman of Harmony Club, and Chairman of Cheung Kei Group