China’s $ 118 billion virus loan surge hampered by bureaucratic confusion
BEIJING / SHANGHAI (Reuters) – China’s efforts to inject 800 billion yuan ($ 118 billion) into businesses through cheap bank loans to counter the economic impact of the virus outbreak have met with a catch: bureaucratic confusion.
Communication issues, confusing eligibility criteria and different lending standards have caused confusion among officials about which businesses qualify and at what rate, according to seven sources with direct knowledge of the situation.
This has left some banks at risk of downgrading future loans after offering financing to companies that have been found ineligible for grants, or holding loans that have already had to be renegotiated.
While China has frequently targeted lending along political lines, the plans, announced as part of broader initiatives in January and again in February, represent the first time that China’s central bank has coordinated rescue efforts with d other government departments.
As part of the first plan to channel 300 billion yuan in cheap loans to help fight the epidemic, companies based in China have been encouraged to approach either the Ministry of Industry and Technology in the United States. information (MIIT), which usually deals with technology policies, either at the National Office for Development and Information Technology. Reform Commission (NDRC), the country’s main state planner.
The two regulators distributed lists of eligible businesses to banks, which could then lend the funds, knowing that they could get the money back from the People’s Bank of China (PBOC). The borrowing companies could then also claim half of the interest payments from the Ministry of Finance.
But a breakdown in communication between departments over lending standards means banks are confused, five bankers involved in the process said.
Some banks have found themselves trying to unwind loans or raise agreed interest rates, two bankers said.
Others have learned that the local MIIT and NDRC office listings were either canceled or that the central bank tightened its lending criteria after lenders already performed their own due diligence, they added.
“Some banks have already started negotiating with their customers to bring the interest rate down to a normal level of around 5%,” instead of an agreed subsidized rate of around 1.6%, a banker said. ‘a local lender in Shanghai.
MIIT, NDRC, PBOC and the Shanghai branch of PBOC did not respond to requests for comment.
The central bank had supported 184 billion yuan in loans granted by banks as of March 13 under the first plan, and local commercial banks issued an additional 107.5 billion yuan in loans at cheap rates to small businesses and to agricultural enterprises under the second plan, the PBOC said on March 15.
The second plan, which did not involve either MIIT or NDRC, was designed to help small agricultural businesses get back to business.
But the confusion remains there too.
Two bankers with first-hand knowledge told Reuters that the central bank’s Shanghai branch released a list in early March of 800 “agricultural” and “small” businesses eligible for targeted loans. Some foreign banks have also received this list.
But also on the list of local units of McDonalds Corp MCD.N, Yum China Holdings’ YUMC.N KFC and Burger King Corp [BKCBK.UL], owned by Restaurant Brands International Inc. of Toronto QSR.TO.
KFC and McDonalds have told bankers calling for loans that they are not interested while Burger King is in the process of applying for a loan, a person with direct knowledge said.
McDonalds and KFC did not immediately respond to requests for comment. Burger King declined to comment.
“We are told to call 50 companies each to go through the list,” a loan manager at a local private bank told Reuters. “But I don’t understand how some businesses can be considered ‘small’ or classified as ‘agriculture’? “
Other listings focused on other struggling industries but also included big names, sending mixed messages on the intention of cheap loan plans.
Food delivery giant Meituan Dianping 3690.HK and phone maker Xiaomi Corp 1810.HK were seeking such loans from Beijing banks through the local government’s finance office, while the multinationals Unilver PLC and 3M Co units were on a similar list compiled by MIIT in Shanghai, Reuters reported earlier.
Big state banks and small town lenders are under political pressure to lend – and they have been warned by financial regulators they would face unspecified repercussions if they didn’t, a banker said .
However, these instructions are not clear.
“There is nothing written,” said a Shanghai-based banker of a national lender. “The threat may not materialize.
It was not clear to what extent the planned loans to companies affected by the virus had been erased by the confusion and some companies have already benefited from the loans.
Shanghai Kaimi Technology Co, a local city-listed disinfectant maker, received a loan in mid-February to purchase raw materials, the company told Reuters.
The company said it had already spent all the money.
Reporting by Cheng Leng in Beijing and Engen Tham in Shanghai; Editing by Jennifer Hughes and Lincoln Feast.