Author: Fran Wang
Posted on: Caixin Global, March 29th, 2017
China is stepping up financial support for the manufacturing sector as it encourages companies to upgrade their technology and tries to channel more funding away from speculative activities into the real economy.
The People’s Bank of China (PBOC), the Ministry of Industry and Information Technology, and the three financial regulators who supervise banking, securities and insurance, pledged to give businesses better access to bank loans, initial public offerings, and bond issuance. They also called on insurance companies to mobilize their vast financial resources to invest in manufacturing companies, according to joint guidelines issued on Tuesday.
The co-ordinated efforts of the five government agencies to promote the Made in China 2025 strategy, an initiative launched in 2015 to upgrade Chinese industry, comes as authorities make a renewed push to boost investment in the real economy amid concerns that funds are being diverted into speculative activities that are leading to asset bubbles.
“The manufacturing industry is the backbone of the real economy, the main platform for technology innovation and a key area of supply-side structural reforms,” the agencies said in the document, Guidance on Financial Support to Build a Manufacturing Power.
Medium- to long-term financial support for technology innovation and upgrading in the manufacturing sector will be strengthened, and financing channels for technology-intensive and small and medium-sized manufacturers will be “actively broadened” to improve quality and efficiency, they said.
Growth in investment in China’s manufacturing sector has decelerated for the last five years after reaching a peak of 31.8% in 2011, as profitability declined due to sluggish demand, excess capacity and rising land and labor costs. Last year, manufacturing investment rose just 4.2%, down from 8.1% in 2015, according to data from the National Bureau of Statistics.
With returns from manufacturing declining and a dearth of investment opportunities, investors turned to other activities to earn better returns. As a result, an increasing amount of official and unofficial bank lending, investment and corporate profits have found their way into the financial markets and into property, sparking concerns in the government about the risks of asset bubbles.
In their Tuesday announcement, regulators told banks to improve the services they offer to manufacturing, including setting up special departments to focus on areas such as financing for advanced manufacturing.
Banks were also encouraged to grant unsecured loans and take intellectual property rights, receivables, and well-known trademark patents as collateral for loans to innovative manufacturing companies and service providers.
Regulators also pledged to “actively support” initial public offerings from “quality and mature” manufacturing firms on the two main stock exchanges in Shanghai and Shenzhen, and to facilitate the listing of high-tech companies on smaller stock exchanges including the Nasdaq-style Growth Enterprise Board in Shenzhen and the National Equities Exchange and Quotation, known as the New Third Board, in Beijing.
The document said manufacturers will get government backing to issue corporate bonds. Bond products tailored to meet the needs of advanced manufacturing and strategic new industries should be developed, it said, without giving further details.
Financial institutions will be assisted in setting up joint venture financial leasing firms with manufacturing companies to help Chinese-made products such as aircraft, trains, ships, and smart grids to expand their markets and improve their international competitiveness, the statement said, without specifying what assistance will be provided.
Banks, securities firms, asset managers and other financial institutions will be encouraged to lend to or invest in mergers and acquisitions in the manufacturing sector, and insurance companies will be called on to take stakes in or buy the bonds of manufacturers to provide them with “low-cost and stable sources of funding.”
Policy makers and government officials have long warned about the dangers to economic and financial stability posed by the shift in funding away from economic activity and into speculative activities such as real-estate investment, commodity futures and the bond market.
Miao Wei, the head of the Ministry for Industry and Information Technology, earlier this month said that a dangerous, bubble-building business was being created by the surge of money going into speculative financial investments. He vowed to improve the appeal of the manufacturing sector to investors through measures such as giving private companies market access to more industries, especially those dominated by state-owned enterprises.