In recent years, in the face of the complex and volatile domestic and external situations, China's monetary authorities have adhered to the requirement of providing financial support for the real economy, focusing on guiding financial institutions to provide all-round support to private enterprises and small and micro enterprises.

According to a recent survey, this has yielded results.

First, structural monetary policy has accelerated the continuous improvement in the scale, structure and cost of credit.

The People's Bank of China, the central bank, adopted a series of policies to change the structure of monetary policy transmission and credit supply since 2013. This helped alleviate "the financing difficulties" faced by small and micro enterprises. However, the financing expenses remained high and improvement of market mechanism was still needed.

Therefore, in 2018, the PBOC, while continuing to strengthen its prudent monetary policy of being "neither too tight nor too loose", reduced the reserve requirement ratio seven times in a row and increased the Standing Lending Facility, Medium-term Lending Facility and Targeted Medium-term Lending Facility operations, providing a long-term stable capital source with preferential interest rate to financial institutions so they could expand the credit to small and micro enterprises.

The PBOC used conventional financial instruments of reloan, rediscount and pledged supplementary lending to expand the scope of support for targeted reserve requirement ratio cuts in inclusive finance. The bank also focused on promoting "the integration of the dual-track loan interest rates" to improve the formation, regulation and transmission mechanism of market-oriented interest rate. It also reformed the formation mechanism of prime loan rate in August.

In terms of policy implementation effects, small and micro enterprise loans have grown significantly, and the number of small and micro enterprises supported by credit and the proportion of credit loans continued to increase in the first half of 2019. The growth rate of loans to small and micro enterprises reached 22.5 percent in June 2019, 7.3 percent more than at the end of last year, and 9.5 percent more than that of all loans in the same period.

The interest rate for loans to small and micro enterprises has remained low, 6.82 percent on average, down 0.58 percent year-onyear. So the financing problems of small and micro enterprises have been alleviated.

Second, the collaborative implementation of inclusive finance policy and monetary policy has brought out the best of both large, and small and medium-sized banks.

Inclusive finance plays an important role in alleviating the financing difficulties of small and micro companies and serving the development of the real economy. The coordination between monetary policy and inclusive finance has been greatly strengthened since 2018. Large banks as well as small and medium-sized banks have given full play to their respective advantages in policy transmission and demonstrated excellent executive ability and innovation power in providing inclusive financial services for small and micro enterprises.

In March, the China Banking and Insurance Regulatory Commission issued a notice instructing China's five largest State-owned banks to give full play to "their leading goose" effect and to strive to achieve an overall inclusive small and micro enterprise loan balance increase of more than 30 percent compared with that at the beginning of the year. The five major banks responded by introducing relevant measures.

They also extensively set up inclusive financial service institutions, and small and micro service centers in all branches. In particular, the Industrial and Commercial Bank of China and China Construction Bank have set up inclusive financial service institutions, in more than 400 and 300 secondary branches nationwide, respectively.

While the large State-owned banks play the role of the "lead goose", local small and medium-sized banks are actively exploring their local markets, adjusting the service focus downward to the counties, towns and areas and groups that have hitherto only had access to weak financial services. They have also taken the initiative to introduce new technologies. Jiangsu Changshu Rural Commercial Bank, for example, has introduced and localized German micro loan investigation technology. It has formed a semi-automatic "credit factory" to realize nonstandard business with standardized procedures for private and personal small and micro loans.

Both rural commercial banks and urban commercial banks nationwide have continuously increased the loan balance of small and micro enterprises. By the end of 2018, the loan balance of small and micro enterprises of rural commercial banks almost equaled that of the State-owned commercial banks.

Third, local governments and financial technology are helping to improve the transmission efficiency of monetary policy.

All local governments and relevant institutions have introduced specific targeted policies and measures to implement the central policy in recent years, playing a positive role in facilitating the monetary policy transmission, especially in promoting the implementation of inclusive finance.

It has been shown that all local governments have centered on supporting small and micro enterprises to alleviate the financing difficulties they faced, and actively taken steps to boost inclusive financial development, including setting up policy-based financing guarantee funds to encourage commercial banks to issue loans; establishing development funds and bail-out funds to directly help companies overcome short-term liquidity problems; and implementing tax cuts and fee reduction policies on a large scale.

The above measures have effectively elevated the enthusiasm of banks to lend to small and micro businesses.

To sum up, monetary policy has made achievements in serving small and micro enterprises with targeted guidance and support. However, there are still some structural dilemmas in the current monetary policy. In the future, the monetary policy should, at the level of both structure and implementation, establish a micro mechanism conducive to its transmission, improve the behavior expectations of banks and enterprises, and strive to build a market-oriented, long-term and integrated policy system.

The author is a research fellow with the National Academy of Development and Strategy at Renmin University of China.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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