The average weighted interest rate of private enterprise credit bonds is as high as 4.86%! Eight departments including the central bank have introduced new regulations to increase financing support for the private economy.
Recently, eight departments including the central bank jointly issued the “Notice on Strengthening Financial Support Measures to Help the Development and Growth of the Private Economy.” The notice proposes 25 specific measures to support the private economy, including maintaining the consistency of the policy, starting from the characteristics of private enterprises’ financing needs, and striving to smoothen diversified financing channels such as credit, bonds, and equity.
Since 2017, private enterprise credit bond issuance has been shrinking, and net financing has been negative continuously since 2018. According to CITIC Fixed Income Chief Mingming, as of October 31, 2023, the weighted average coupon rate of existing private enterprise bonds was 4.86%, while state-owned enterprises and central enterprises were 4.29% and 3.32% respectively. The notice aims to address these high financing costs and provide support to the private economy.
Financial support for private enterprises has had some positive impacts, such as an increase in the balance of inclusive small and micro loans and a stabilization in the growth rate of real estate development loans. However, there are still challenges, particularly in the area of bond financing. The total financing amount of typical real estate companies has seen a year-on-year decrease of 25%, and the volume of Q3 financing has continued to decline year-on-year.
To address these challenges, the notice proposes to promote the expansion and increment of bond financing support tools for private enterprises through guarantee credit enhancement and the creation of credit risk mitigation tools. This includes developing a high-yield bond market, which can lower the threshold for private enterprise bond financing and provide a new investment direction for market investors.
Despite these efforts, the financial community is warning investors to be cautious when investing in the stock market, as the content, data, and tools in the notice do not constitute investment advice.
Overall, the new notice introduces important measures to support the private economy, but challenges in bond financing and high financing costs for private enterprises still need to be addressed. The development of a high-yield bond market and other financing support tools will be crucial in meeting the financial needs of private enterprises at all levels.