With much of China's economy at a standstill while authorities try to contain an epidemic, millions of private companies face collapse if banks do not act quickly.
A survey of small and medium-sized Chinese companies conducted this month revealed that a third of respondents only had enough cash to cover fixed expenses for a month, with another third running out within two months, according to a report.
«If China fails to contain the virus in the first quarter, I expect a vast number of small businesses would go under,” said Lv Changshun, an analyst at Beijing Zhonghe Yingtai Management Consultant Co, who was quoted in «Bloomberg» (behind paywall).
Private Firms Struggle To Tap Funding
Privately-owned firms contribute some 60 percent to the economy and 80 percent of jobs in China, yet struggle to gain financing to help them expand during the boom years and survive during crises. Many of them were barely scraping by before the virus struck, battered by a trade war and lending crackdown that sent economic growth to a three-decade low last year.
Relief measures from China’s banking giants in response to the outbreak came in drips, and mostly earmarked for fighting the virus. Industrial & Commercial Bank of China (ICBC), the nation’s largest lender, said it offered relief to about 5 percent of its small business clients.
Small Bandages to Gashing Wounds
The bank has so far allocated 5.4 billion yuan ($770 million) to help companies fight the virus. «We approve qualified small businesses’ loan applications as soon as they arrive,» the bank said in a statement.
Chinese banks as a group had offered about 254 billion yuan in loans related to the containment effort as of Feb. 9, according to the banking industry association, including foreign lenders who also lowered rates. This pales in comparison with the interest payments faced by China’s small businesses, who usually face about 36.9 trillion yuan of loans every quarter.
Stringent Requirements
Stringent requirements and shortlists limit access to special loans set aside by the central bank for virus-related businesses, while local governments and banks have imposed caps on the quantum.
While one of China’s largest brokerages have opened a fast lane to ease debt sales by businesses involved in the containment effort, borrowers are required to prove they will use at least 10 percent of the proceeds to fight the disease.
