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China offers tax-free interest income in bid to spur lending to small firms
November 6, 2017 / 2:26 AM / 12 days ago

China offers tax-free interest income in bid to spur lending to small firms

BEIJING (Reuters) - China will exempt banks’ interest income from loans to small firms and rural households from value added tax, authorities said on Monday, in the latest step to address a long-standing issue of lack of financing to small firms.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

The policy will be in effect from December 1, 2017 to the end of 2019, the finance ministry and tax administration said, while contracts for loans with small firms will also be free of stamp taxes from 2018 to 2020.

The supportive policies will apply to loans of 1 million yuan ($150,750) or less, said the notice posted on the finance ministry’s website.

The move was the latest of a series of top-level policy measures to boost financial support for China’s credit-starved small companies after Premier Li Keqiang highlighted their funding difficulties at a State Council meeting on Sept. 27.

Beijing has for years been looking for ways to encourage more financial support to China’s millions of small and mid-sized enterprises (SMEs), which account for most of the employment in China and are more productive than state firms

The big state firms are seen as the favored borrowers by China’s state-owned banks.

Small firms are also an important new driver of innovation, investment and consumption, Li said at the meeting, noting that SMEs still struggled to access loans.

The outstanding volume of loans to small firms was 23.5 trillion yuan as of the end of September, representing a year-on-year growth of 17.8 percent and accounting for one-third of total corporate loans, central bank data showed.

Earlier this year, a number of the country’s largest state banks, led by Industrial and Commercial Bank of China Ltd (601398.SS)(1398.HK) and China Construction Bank Corp (0939.HK)(601939.SS), set up finance departments at the headquarter level to increase lending to SMEs.

China’s central bank in September cut the amount of cash that must be held as reserves for banks that meet certain requirements for lending to small business and the agricultural sector.

Reporting by Elias Glenn and Shu Zhang; Editing by Richard Pullin

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