(Yicai Global) March 8 -- More support for micro and small businesses is expected this year but further cuts in the reserve requirement ratio or interest rates are unlikely, according to experts, after Premier Li Keqiang told the National People's Congress that the nation’s economic policy will return to normal in 2021.

China’s monetary policy will focus this year on keeping a balance between stable growth, risk prevention and control of inflation, said Wang Qing, chief macro analyst at Golden Credit Rating International.

The country will use structural and targeted support to guide funds to productive areas where the need is greatest, said Zhou Maohua, an analyst at the Financial Markets Department of China Everbright Bank.

An across-the-board RRR cut is highly unlikely this year, Zhou said, adding that the authorities will rely more on targeted policy tools to avoid any abnormal impact on the economy. 

“It is absolutely unnecessary to cut the RRR and interest rates,” according to Ming Ming, deputy director of Citic Securities Research Institute.

The central bank reduced the RRR and the reverse repurchase rate for money market operations last year because of Covid-19, Ming said. But the economy has returned to normal this year, so further RRR and interest rate cuts are “very unlikely,” he said.

The supply of broad money, M2, will grow between 9 percent and 10 percent this year from last year, compared with 10.1 percent at the end of December from the same period the previous year, Zhou Maohua said, based targets for gross domestic product and inflation control contained in Premier’s Li’s government work report.

More Business Loans

“Large commercial banks must increase their loans to micro and small companies under the inclusive policy by more than 30 percent,” the 2021 government work report said.

Monetary policy will aim to support the real economy, Ming said, adding that the government will adopt more innovative and structural policies to aid weak links in the economy, such as agriculture, rural areas, micro and small companies, as well as tech startups.

The government will maintain its support for micro and small firms, Zhou said, adding that the requirement for 30 percent growth in loans this year “is quite high,” much higher than the 12 percent or so increase for all loans despite 2020’s low base.

“China must offer more financing convenience to micro and small companies and stabilize their financing costs,” the work report said. That means interest rates on loans will edge lower, which should ease the market's previous worries about a rise in rates this year, Wang said.

Stabilizing Leverage, Preventing Risks

“It is still an arduous task to prevent and dissolve risks in finance and other fields,” the government work report said, adding that “the bottom line of no systemic risks must not be broken.”

Stabilizing leverage and preventing risks will be the policy priorities for this year as the coronavirus has been brought largely under control and the economy is recovering, according to the experts interviewed by Yicai Global.

Certain financial risks have begun to mount again despite the achievements of last year, which is a by-product of the special policies used to respond to the coronavirus, said Guan Tao, global chief economist at BOC International. 

China’s macro leverage ratio rose 23.6 percentage points to 270.1 percent at the end of last year from 246.5 percent at the end of 2019, but the rate of growth has been slowing on a quarterly basis and became negative in the fourth quarter, according to the latest calculations from the National Institute for Finance and Development.

There is no doubt that China will achieve its economic growth goal of over 6 percent this year because the target is low, which gives the government a free hand to deal with unsolved problems, Zhang Zhiwei, chief economist of Pinpoint Asset Management, told Yicai Global.

Editors: Tang Shihua, Tom Litting