China to promote financing guarantee for small firms, rural sector

China will boost financing guarantee services for small and micro businesses and the rural sector, according to rules released by the cabinet Monday.

Financing guarantee companies should offer more services for small and micro businesses and the rural sector at relatively low rates, according to the rules published under a State Council decree signed by Premier Li Keqiang.

Local governments should increase fiscal support for such companies while information technology such as big data should be adopted to better meet the demands of small firms and rural development, the rules stated.

For the same purpose, government-backed financing guarantee companies will be supported, and cooperation between the government, banks and financing guarantee companies will be promoted, according to the rules.

The government is working to channel funding to small and micro businesses and the rural sector, which are usually less favored by banks due to higher credit risks than state-owned giants and other sectors.

Financing guarantee companies provide guarantees for borrowers or debt issuers and play an important role in helping small businesses and rural projects secure funds, according to a statement from the Legislative Affairs Office of the State Council and the China Banking Regulatory Commission.

The rules also required financing guarantee companies to improve business standards and risk control.

The financing guarantee industry has seen rapid development in recent years, but there has also been inadequate supervision and irregular operations, which has led to risks, according to the statement.

It said the industry needs strict regulation, noting that the rules have set thresholds for the establishment of financing guarantee companies.

Outstanding liabilities guaranteed by a company should not exceed 10 times of its net assets, according to the rules.

The rules will take effect on Oct 1, 2017.