Think-Tank Update

•  The All-China Federation of Industry and Commerce (ACFIC), the National Institution for Finance & Development (NIFD) of CASS and Ant Financial jointly release the 2019-2020 MSME Financing Status Report.

Based on 150,000 valid samples from fintech platforms, the report offers insights into the financing status of micro, small and medium-sized enterprises (MSMEs) from 2019 to 2020. The report notes that after just a few years of development, internet banking has made financing more available to MSMEs than ever before. In 2019, 12.3% of the small enterprises and 49.7% of the micro enterprises and individual business owners that lacked access to finance raised funds from internet banks. Taking the policy response to COVID-19 as an opportunity, we suggest establishing a long-term financing supply mechanism for MSMEs by increasing internet-based credit suppliers and creating a digital MSME financing system in light of China’s conditions; establishing government guarantee and risk compensation systems; adopting supply chain financing systems based on digital technology; tweaking bank rating and performance evaluation criteria to encourage banks to serve MSME customers.

Think-Tank Opinion

•  NIFD releases the Report on China’s Macro-Leverage Ratio, Q1 2020

The report notes that China’s macro-leverage ratio spiked to 259.3% in Q1 2020 amid the COVID-19 crisis, but the growth is still below record high. This shows the Chinese government’s composure in conducting a policy expansion with risks in mind. Sector-wise, non-financial corporations (NFCs) were chiefly responsible for the rise in the leverage ratio in Q1 2020. The household and government sectors saw limited growth in their leverage ratios, and the financial sector’s leverage ratio nudged up. The report concludes that judging by its fiscal muscle and policy effect, the central government should raise the leverage ratio and increase growth amid the once-in-a-century pandemic. The government sector will then see its leverage ratio rise at a faster pace than the household sector and NFCs. Under the “housing is for living in, not for speculation” principle, China’s real estate policy should offer more flexibility and restrictions should remain in place for tier-1 cities but relaxed as appropriate elsewhere. Meanwhile, cash payouts, consumption coupons and in-kind allowances may be distributed to boost household consumption.

•  NIFD issues the Report on Real Estate Finance, Q1 2020

 The report indicates slumps YoY in commercial housing sales and price growth in Q1 2020 under COVID-19. Some cities have seen their housing prices fall on a YoY basis. Rents went down. Local governments reported a sharp decrease in their land sales area and revenue. Housing inventory swelled. Short of liquidity, real estate giants took the lead in offering discounts to homebuyers. There has been a steep rise in the number of small and medium-sized real estate companies filing for bankruptcy. Without relaxing real estate regulation, China’s central and local governments have issued a large number of supply- and demand-side policies to bolster the housing market, which is expected to return to normal as COVID-19 abates after Q2 and online sales pick up.