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New Policy on Financially Supporting Economic Restructuring and Upgrading

2013.12.23

On July 1, 2013, the General Office of the State Council published the Guiding Opinions on Financially Supporting Economic Restructuring and Upgrading (Guo Fa Ban [2013] No.67, “the Opinion”).  Despite the steady growth of economy, the structural contradictions are still prominent and there exists unreasonable distribution of funds. In response to these problems, the Opinions suggest the following key credit support measures:

  • Continue to implement the steady monetary policies and maintain a reasonable growth of total currency supply. Use currency quantity, price, reserve rate, interest rate and other financial and policy means to improve the credit efficiency and availability to different sectors of the economy, including banking, agriculture and small and micro-sized enterprises, and further boost the growth of real economy.

  • To guide and support the key areas and industry restructuring. Local governments shall stick to the principle of “encouragements and discouragements” and support corporate mergers and acquisitions (“M&A”) through various methods, including but not limited to providing domestic security-backed foreign credit facilities, RMB loans, bond financing, equity financing, issuing preemptive shares and private placement of M&A loans and extension of loan term.
    Local governments shall also encourage delisting of poorly performing enterprises by assets preservation, transfer of non-performing loans and write-off. Local governments are strictly prohibited from providing additional credit or direct financing to illegal construction projects with serious surplus of production capacity.

  • To integrate financial resources to support small and micro-sized enterprises. Qualified banks may issue special bonds regarding small and micro-sized enterprises and loans made available should not be included in the deposit-loan ratio assessment.
    Local government shall also promote the securitization of credit assets, moderately approve loans guaranteed by foreign enterprises and diversify domestic sources of financing. The Opinions further advise local governments to establish and guide the development of financing guarantee companies. Support shall be given to scientific and technology, innovative and start-up companies.

  • To support agriculture credit. The Opinions call for financial institutions to extend banking service to every township and village, encourage the use of direct financing and expand the use of collateral transactions, including Forest Right-Based Mortgage Loan, Rural Land Contracting Right-Based Mortgage Loan and Rural Residential Land Use Right-Based Mortgage Loan.

  • To further develop consumer finance and to promote consumption upgrade. The Opinions require banks to improve credit card service and widen the scope of credit card use and consumption.

  • To support non-commercial banks and commercial banks to support the “going out” strategy. The Opinions encourage the cross-border use of RMB, promotion of trade and investment convenience, lowering of foreign exchange regulatory authority, gradual development of individual investors’ foreign direct investment and the further opening of capital market to foreign investors.

  • To develop multi-layer capital market. The Opinions instruct local governments to optimize the system of Main Board, Small and Medium-sized Enterprise Board and Growth Enterprise Board. The Opinions also direct governments to stretch out the pilot project of Small and Medium-sized Enterprises Share Transfer to the whole country.
    Local government may also develop M&A investment funds, encourage private equity investment fund and venture capital fund, and accelerate the construction of Futures Market and innovation of financial products to further reveal the bidding, hedging and risk diversifying characters of the Futures Market.

  • To further strengthen insurance protection. Spread the coverage of agricultural insurance, especially the Food Supply Project insurance and Agricultural Product Quality insurance. Provide investment, operation and labour package insurance for foreign trade enterprises. Promote pilot program of microfinance insurance and upgrade domestic trade credit insurance.

  • To encourage private capital to enter into financial sector and impose differentiated market access thresholds in regard to geographical and business scope.

  • To strictly guard against financial risks. The Opinions urge local governments to reinforce behavior supervision and risk control, and actively mitigate the risks exposed in the restructuring of high pollution, high energy consumption and overcapacity industries. Local governments shall also sustain banks to transfer the non-performing loans, expand the banks discretion to write-off such loans and speed up the construction of social credit system.

It is expected that funds will be flowing more to innovative companies, and small and micro-sized enterprises, in agriculture, clean energy, environmentally friendly and “going out” projects.