C¥100 bn refinancing loan quota for ag and small businesses

context: In recent weeks, the eastern coastal and southern regions of China have been hit by Typhoon Gaemi, with record-breaking rainfall. Meanwhile, the corn and wheat-growing areas in northern China have also been experiencing an unusual heatwave, which could impact the grain harvest this autumn. The central bank is providing low-cost funds to financial institutions in affected areas, which will help enhance their willingness to serve these areas and reduce financing costs.

People's Bank of China (PBoC) added another C¥100 bn to the refinancing loan quota for ag and small businesses across 12 provinces including Chongqing, Fujian, Guangdong, Guangxi, Henan, Heilongjiang, Hunan, Jilin, Jiangxi, Liaoning, Shaanxi and Sichuan, on 13 August.

This initiative is aimed at supporting flood control, disaster relief and post-disaster reconstruction in severely affected areas, with an emphasis on providing credit support to businesses in these regions, especially SMEs, individual businesses, as well as ag and farming companies.

Ag and small business refinancing loans are structural monetary policy tools designed primarily for specific financial institutions, such as rural financial institutions. Currently, the one-year interest rate for these loans is 1.75 percent, which is noticeably lower than the 2.3 percent one-year medium-term lending facility rate.

As of the end of June 2024, the ag refinancing loan quota stood at C¥810 bn, with a balance of C¥677.1 bn, and was mainly allocated to rural commercial banks, rural cooperative banks, rural credit cooperatives and village banks. The small business refinancing loan quota was C¥1.8 tn, with a balance of C¥1.69 tn, allocated to city commercial banks, rural commercial banks, rural cooperative banks, village banks and private banks.

PBoC will urge relevant provincial (regional, and municipal) branches to make full use of the newly added refinancing loan quota. It will also guide financial institutions to precisely meet the financing needs for disaster relief and post-disaster reconstruction, simplify procedures, speed up approvals, ensure funding for affected businesses and help them resume production.

In the market's view, the central bank's move demonstrates the structural monetary policy tools' ability to focus on the weak points of the national economy, providing targeted support at the right time.