Policy moves to reduce funding risks

Headquarters of the People's Bank of China (PBOC), the central bank, is pictured in Beijing, September 28, 2018. [Photo/VCG]

The central bank has announced financial policies designed to support private companies this week, covering areas such as bank loans, corporate bonds and equity financing.

The People's Bank of China will promote the launch of a specially designed financial instrument to secure private firms' bond issuance, to guard against corporate bond default risks, officials from the central bank's operations office said at a meeting on Friday.

According to an earlier interview with the central bank's governor, Yi Gang, an initiative to promote private firms' bond issuance has already launched. Three companies have already raised 1.9 billion yuan ($273.51 million) via over-subscribed bonds, and additionally 30 private enterprises are preparing to issue bonds, he said.

The central bank will also promote equity financing for private firms, working with various financial institutions, including fund management companies and brokerages. The measure is expected to reduce risks related to private firms securing financing by pledging shares as collateral, according to the meeting.

Monetary policy could be further eased in the future, as tightening credit conditions have contributed to private enterprises' financing difficulties, analysts said.

The monetary authority is likely to increase the supply of long-term and reasonably priced funding for financial institutions, and further cuts of the reserve requirement ratio would fit this goal, Goldman Sachs said in a research note.

"We expect more such official comments in the coming weeks with regard to support for private enterprises, which may help to improve market sentiment, especially among domestic investors who have been particularly bearish," it said.