China's $118 billion virus lending push stymied by bureaucratic confusion

 

Cheng Leng & Engen Tham, Reuters 

March 19, 2020

 

BEIJING/SHANGHAI (Reuters) - China’s efforts to pump 800 billion yuan ($118 billion) into companies via cheap bank loans to counter the economic impact of the virus outbreak have run into a snag: bureaucratic confusion.

 

Communication issues, confusing eligibility criteria and different lending standards have caused a muddle between officials over which companies qualify and at what rate, according to seven sources with direct knowledge of the situation.

 

That has left some banks at risk of future soured loans after offering finance to companies who turned out ineligible for subsidies, or holding loans which have already needed to be renegotiated.

 

While China has frequently targeted lending along policy lines, these plans, announced as part of broader initiatives in January and again in February, represent the first time China’s central bank has coordinated rescue efforts with other government departments.

 

Under the first plan to channel 300 billion yuan of cheap loans to help with epidemic control, China-based firms were encouraged to apply to either the Ministry of Industry and Information Technology (MIIT), which typically deals with tech policies or the National Development and Reform Commission (NDRC), the country’s top state planner.

 

The two regulators circulated lists of eligible firms to banks, which could then lend the funds, safe in the knowledge they could reclaim the money from the People’s Bank of China (PBOC). The borrowing companies could then also claim half the interest payments back from the finance ministry.

 

But a breakdown of communication between the departments on loan standards mean banks are left confused, said five bankers involved in the process.

 

Some banks have been left trying to unwind loans or raise agreed interest rates, said two bankers.

 

Others were told that lists from local MIIT and NDRC offices have been canceled or that the central bank had tightened its lending criteria after lenders had already conducted their own due diligence, they added.

 

“Some banks already started negotiating with clients to rewind the interest rate back to a normal level of around 5%,” instead of an agreed subsidized rate around 1.6%, said one banker at a local lender in Shanghai.

 

MIIT, NDRC, PBOC and the Shanghai branch of PBOC did not respond to requests for comment.

 

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https://www.reuters.com/article/us-health-coronavirus-china-loans/chinas-118-billion-virus-lending-push-stymied-by-bureaucratic-confusion-idUSKBN21700P