China takes new measures to cut financing costs for real economy

BEIJING, Aug. 19 (Xinhua) -- Chinese companies are likely to see lessfinancing burden thanks to a string of new government policies,analysts said.

In its latest move to cut financing costs for the real economy, thePeople's Bank of China (PBOC), the country's central bank, unveiled aplan on Saturday to improve and reform the country's loan prime rate(LPR) mechanism.

The new LPR's quotations, to be issued on a monthly basis startingTuesday, will be based on the rates of the central bank's open marketoperations to better reflect market changes and should be adopted as themajor lending rate reference for banks to issue new loans, according tothe PBOC.

The move is expected to drive down the real interest rates in theeconomy, as the new LPR will better reflect market rates, which had beentrending down, the PBOC said.

The new scheme will improve the transmission channel of the country'smonetary policy, said Sheng Songcheng, former head of the PBOCstatistics and analysis department.

Small and micro companies with high asset quality will benefit from the reform, Sheng added.

The new LPR scheme was part of a policy package released at a recentState Council's executive meeting, which called for coordinated use ofdifferent kinds of monetary tools and the greater role of financingguarantee in reducing the financing costs of the real economy.

Efforts will be made to make lending rates and fees more open andtransparent. Charges by financial institutions will be strictlyregulated, and intermediate agencies will be urged to cut fees,according to the meeting.

Rather than resorting to across-the-board interest rate cuts orreserve requirement ratio adjustments, China has been using a variety ofmonetary tools to channel funds into the real economy where the moneyis most needed.

In addition to bank loans, the country has been encouraging directfinancing as an important channel for companies to raise funds.

In an official document released Sunday on the development ofShenzhen, the country vowed to improve the mechanisms for initial publicoffering (IPO), refinancing, mergers and acquisitions on the ChiNext,China's Nasdaq-style board.

The document also encouraged the registration-based IPO system, whichcuts listing application red tape and allows more market-based pricing,a boon to growth enterprises seeking to raise money.