Increasing demand for acceptance of bankers guaranteed by issuers and technically classified as loans has reduced interest banks paid to nearly 0% in the second half of December 2021. On December 23, 2021, it reached a record low of 0.007%.
This is much lower than the average cost of capital of a Chinese bank of 2.5% for the same period, and rather than the risk of suffering a big loss by issuing its own loan at a high interest rate, the money is accepted by low-yielding bankers.
President Xi Jinping’s administration wants banks to lend more to SMEs in government-favourite sectors, especially agriculture and new energy vehicles.
Loan officials said purchasing banker consent to meet year-end loan quotas is the safest way to support the government’s policy goals.
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