(No.126 [2008])

The people’s governments of all provinces, autonomous regions and municipalities directly under the Central Government, all ministries and commissions of the State Council, and all institutions directly under the State Council:

To mitigate the concussion of the current international financial crisis, implement the ten measures of the Central Committee of the Party and the State Council for further expanding domestic demand and enhancing economic growth, carry through the proactive financial policies and moderately easy monetary policies, provide more financial support and promote the rapid yet steady development of the national economy, we hereby give the following opinions upon the approval of the State Council:

I. Implementing moderately easy monetary policies to promote the steady increase of currency credit

1. Keeping the fluidity of the banking system and promoting the steady increase of currency credit. We shall, according to the economic and social development needs, create a moderately easy currency credit environment, take 3 to 4 percentage points higher than the summation of the GDP growth rate and the price rising rate as our objective of the total money supply in 2009, and do our best to increase the broad money supply of the whole year by about 17%. We need to monitor the total fluidity and the distribution changes, properly reduce open market operations, stop issuing three-year central bank instruments, issue one-year and three-month central bank instruments less frequently, and properly adjust monetary policies in the right time according to the domestic and abroad situations.

2. Adding 100 billion yuan to the credit scale of policy banks for the year 2008, encouraging commercial banks to grant loans in support of centrally funded projects and striving for increasing the RMB loans of financial institutions by 4000 billion yuan or more for 2008.

3. Giving play to the market’s role in interest rate decisions and improving the self-regulation capability of the economy. We shall allow more room for loan rates to float downward, improve the discount interest formation mechanism, and perfect the interest rate system of the central bank. We will, under the principles of taking the initiative, keeping it under control and moving forward step by step, further improve the RMB exchange rate formation mechanism, increase the elasticity of exchange rates, and maintain the stability of the RMB exchange rates at a reasonable balance level.

II. Strengthening and improving credit services and satisfying the reasonable fund demands

4. Strengthening the coordination and cooperation among monetary policies, credit policies and industrial policies. We shall stick to the principles of differential treatment and the coexistence of encouragements and discouragements, support the development of the industries that meet the state industrial policies, and provide more credit support for people’s livelihood construction projects, projects relating to “agriculture, farmers and rural areas”, key projects, post-disaster reconstruction projects, energy saving and pollutant reduction projects, scientific and technological innovation, technological transformation, merger and reorganization, and coordinated regional development. We shall vigorously develop the small-sum credit business whose clients are primarily farmers, enlarge the scale of interest discount loans for poverty relief, try to develop the small-sum business-starting loans toward college graduates, and support the development of high and new-tech industries. At the same time, we shall have adequate control over loans to the general processing industry and restrict the granting of loans to those inferior enterprises in high energy consumption and high pollution industries or industries with an excessive production capacity.

5. Encouraging banking financial institutions to, under the premise of keeping risks under control, give credit support to enterprises which are basically good, have a relatively good credit record, which are competitive and have a market share and orders in place but are temporarily facing operating or financial difficulties. We will clean up the bank credit policies, regulations, measures and guidelines in an all-round way, and make proper adjustments to the General Rules on Loans and other relevant provisions and requirements according to the needs of the current special time.

6. Supporting the development of small and medium enterprises. We shall carry out the financing guarantee policies, discount interest policies and other support policies for small and medium enterprises, encourage the local people’s governments to provide more support for credit guarantee companies by ways such as investment and risk compensation, set up a multi-layer guarantee system which allows the coexistence of small and medium enterprise loan guarantee funds and guarantee institutions funded by the central treasury, those funded by the local treasury and those jointly established by enterprises, improve the proportion of loans to small enterprises in financial institutions, and exempt qualified institutions providing credit guarantee for small and medium enterprises from the business tax.

7. Encouraging financial institutions to develop the export credit business. We will expand the scope of application of the preferential interest rate on the seller’s credit in RMB export of import-export banks to exported products with independent intellectual property rights, independent brands and high added value. We will also permit financial institutions to operate the buyer’s credit business in RMB export, and give play to the positive role of export credit insurance in supporting financial institutions’ operation of the export financing business.

8. Providing more credit support for industrial transfer. We encourage financial institutions to develop new credit products and credit examination modes specially designed for industrial transfer, try different modes of mortgage and guarantee, firstly grant RMB loans and support the transfer of domestic excessive production capacity to overseas.

9. Providing more financial policy support for rural areas and diverting more credit funds to rural areas. We shall stick to the orientation that agricultural banks shall serve for agricultural development, enlarge the ground where agricultural development banks can provide support for agricultural development, expand the scope of agriculture-related business of the postal savings banks, and give play to the role of rural credit cooperatives as a main force in serving farmers. The deposits newly absorbed by banking financial institutions within the jurisdiction of counties shall be used primarily for granting loans locally. We will set up a rural credit guarantee mechanism supported by the government, joined by multiple parties and run according to the market principles. We may try credit products under diversified forms of guarantee in rural areas on the basis of expanding the scope of valid guaranties. We shall also guide rural financial institutions to operate forestry ownership hypothecated loan business.

10. Implementing and promulgating the relevant credit policies and measures and supporting people’s purchase of their first ordinary home or improved ordinary home. We shall provide more credit support for the construction of low-rent houses and economically affordable houses and the reconstruction of shed areas for low-income urban residents. We shall support the development of the credit business for automobile consumption and diversify the financing channels of auto lease companies. We shall also vigorously expand the rural consumer credit market.

III. Stepping up the building of a multi-layer capital market system and giving play to the market’s role in the distribution of resources

11. Taking effective measures to stabilize the operation of the stock market and give play to the market’s role in the distribution of resources. We shall improve the rules governing the SME board market, initiate the second board at a good time and gradually improve the organically linked multi-layer capital market system. We encourage enterprises to make mergers and reorganizations by taking advantage of the capital market when conditions permit, enhance the industrial integration and upgrading of listed companies, simplify the examination and approval procedures, increase market efficiency and improve the competitiveness of listed companies.

12. Promoting the stable development of the futures market, trying new operation modes to make the futures market of agricultural products serve “agriculture, farmers and rural areas” and coming out with new varieties of commodity futures such as steel and paddy, etc. that meet the demand for national economic development needs as early as possible.

13. Issuing more bonds and developing such bond financing instruments as enterprise bonds, corporate bonds, short-term financing bonds and mid-term instruments. We shall give priority to the issuance of bonds related to the construction of infrastructure facilities, people’s livelihood, and the ecological environment as well as post-disaster reconstruction, and encourage the listed companies involved in the key construction projects of the state to issue corporate bonds and convertible bonds. We shall steadily develop the business of the issuance of consolidated bonds by small and medium enterprises and conduct pilot operation of issuing short-term financing bonds by small and medium enterprises. We shall facilitate listed commercial banks to enter into stock exchanges and the bond market on the pilot basis, make researches on the issuance of RMB bonds in China by overseas institutions and enterprises, and allow Hong Kong-funded enterprises or financial institutions that have relatively more business contact with the mainland to issue RMB bonds in Hong Kong. We also need to improve the rules and standards regulating the issuance of bonds in the bond market.

IV. Giving play to the guarantee and financing functions of insurance and enhancing the stable operation of the economy and society

14. Vigorously developing the insurance business for “agriculture, farmers and rural areas”, further expanding the coverage of agricultural insurance, and encouraging insurance companies to develop petty insurance business for agriculture and rural areas and for the product quality insurance business. We shall develop housing and auto consumption-related insurance business in a steady way, make vigorous efforts to develop construction insurance and engineering insurance businesses to provide risk guarantee for key infrastructure construction projects, and do a good job in providing insurance for post-disaster reconstruction so as to support the restoration and reconstruction of the basic living facilities and common infrastructures for the people in the disaster-ridden areas. We need to make researches on opening the short-term export credit insurance market so as to get commercial insurance companies involved in the market competition and support export trade.

15. Giving play to insurance companies’ role as institutional investors and insurance funds’ functions in investment and financing, encouraging insurance companies to buy treasury bonds, financial bonds, enterprise bonds and corporate bonds, and guiding insurance companies to invest in infrastructure construction projects, e.g., transport, communication, and energy, etc. as well as the infrastructure projects in rural areas by way of holding the creditor’s rights. We shall steadily encourage insurance companies to invest in the stock rights of large-scale state-owned leading enterprises, especially those in the energy industry and other strategic industries.

16. Vigorously developing individual insurance business and group endowment insurance business, and encouraging enterprises to set up a multi-layer endowment guarantee plan through commercial insurance when conditions permit and study the feasibility of such preferential tax policies as allowing endowment insurance policy holders to defer their tax payment. We shall push forward the development of health insurance, support insurance institutions to invest in medical institutions and old age entities, help the insurance industry to get more involved in the new-type rural cooperative medical care system, and develop the health insurance products and accidental injury insurance products that meet the needs of farmers.

V. Innovating financing forms and diversifying enterprises’ financing channels

17. Allowing commercial banks to grant M&A loans to domestic and overseas enterprises. We shall study and improve the tax policies governing the M&A of enterprises and make vigorous efforts to facilitate the M&A and reorganization of enterprises.

18. Initiating the pilot operation of real estate trust investment funds and diversifying the financing channels of real estate enterprises. We shall give play to the bond market’s function of evading risks, steadily move forward in innovating the exchange instruments in the bond market and the relevant financial products, and initiate the pilot operation of issuing project income bonds.

19. Making more efforts in encouraging and guiding private funds. We shall open more fields to non-governmental investment, and attract more private funds to get involved in projects encouraged by the government, especially those post-disaster infrastructure reconstruction projects. We shall work out administrative measures for equity investment funds, and improve the relevant policies governing industrial and commercial registration, investment by institutional investors, securities registration and taxation so as to ensure the legal and healthy development of the equity investment fund industry. We need to implement and improve the preferential tax policies for business-starting and investment enterprises in accordance with the provisions of the Law on the Promotion of Small and Medium Enterprises on encouraging business-starting and investment institutions to invest more in small and medium enterprises.

20. Giving full play to the role of financial institutions including rural credit cooperatives as a main force in supporting agricultural development, expanding the pilot operation of such new-type rural financial institutions as village and town banks and the pilot operation of small-sum loan companies to more areas, developing non-government financing and setting up a multi-layer credit supply market.

21. Innovating credit risk management instruments. We need to, on the basis of further developing the credit assets reorganization and transfer market, allow the development of credit risk management instruments which take small and medium enterprise loans, agricultural loans and key national construction project loans as the subject matter assets in the inter-bank bond market on a pilot basis so as to appropriately disperse credit risks.

VI. Improving foreign exchange administration and making more efforts in facilitating trade and investment

22. Improving the examination of the authenticity and conformity of foreign exchange collection and settlement in trade as well as trading behaviors so as to facilitate the financing of enterprises, especially small and medium enterprises. We shall accelerate the reform of the import and export verification and write-off system, simplify procedures and transform foreign exchange administration in trade to total quantity inspection, off-site inspection and subject supervision. We shall appropriately raise the proportion of foreign exchange settlement in the advances on sales of enterprises, raise that proportion for general enterprises from 10% to 25%, and keep the export advances on sales of a relatively small amount out of the foreign exchange settlement quota management. We shall adjust the provisions on the annual amount of deferred payment of enterprises by raising the proportion of the annual amount of deferred payment of an enterprise against its import payment in foreign exchange of the previous year from 10% to 25%. We need to simplify the examination and approval procedures for enterprises’ application for foreign exchange settlement proportion or temporary quota and shorten the examination and approval time. We shall allow more qualified China-funded and foreign-funded enterprise groups to practice centralized management of foreign exchange funds so as to improve the capital use efficiency. We also need to support the development of the RMB business in Hong Kong, allow more use of RMB in the valuation and settlement in trade with surrounding countries, and reduce the foreign exchange rate risks in foreign economic activities.

VII. Accelerating the modernization of financial services and improving the overall financial service level.

23. Further enriching the payment instrument system, improving the payment and liquidation efficiency and increasing the circulation of funds. We shall make it more feasible to foresee the future cash supply and scientifically organize the allocation of funds in floatation so as to ensure cash supply. We need to provide support for the implementation of the proactive fiscal policies, enlarge the coverage of government subsidization, e.g. the centralized payment for agricultural development and disaster relief by the treasury, and ensure that the funds required for the people’s livelihood construction, infrastructure construction, ecological environment construction and post-disaster reconstruction reach the ultimate recipients nonstop and make sure that all fiscal expenditures be put in position in good time. We need to optimize the operational flow for refunding the taxes on import and export products with funds from the national treasury so as to accelerate the tax refund process. We shall accelerate the building of the credit system, continue to facilitate the building of the small and medium enterprise credit system and the rural credit system, and further regulate the credit rating in the credit market and the bond market so as to create favorable conditions for small and medium enterprises to raise funds.

VIII. Providing more fiscal and tax policy support and improving the capability of the financial sector for promoting economic development

24. Relaxing the conditions for financial institutions to verify and write off bad debts in small and medium enterprise loans and agricultural loans. We need to authorize financial institutions to reorganize or deduct/exempt small and medium enterprise loans and agricultural loans that meet the prescribed requirements. We shall allow financial institutions to, when any borrower has financial difficulties and cannot repay the principal and interest of loan in a timely manner and in full amount, deduct/exempt the principal and on-balance-sheet interest in addition to extending the term of the loan and deducting/exempting the off-balance-sheet interest, provided that the borrower shall be capable of repaying the remaining debt after the reorganization or deduction/exemption.

25. Simplifying the procedures for tax authorities to examine financial institutions’ verification and write-off of bad debts, expediting the examination process and improving the examination efficiency so as to help financial institutions timely eliminate their non-performing assets and prevent credit crunch. Pre-tax provision of loss reserves shall be made in full amount for agricultural loans and small and medium enterprise loans. Preferential policies will be made for petty loans granted to farmers, agricultural guarantees and agricultural insurance, and financial institutions are encouraged to provide more credit support for “agriculture, farmers and rural areas”. We should study the tax policies on financial institutions’ disposal of assets used for paying debts, and improve the financial lease tax policies at the time of VAT transformation.

26. Giving play to the role of public funds as a lever and using bank credit capital to support economic growth. We shall encourage the local people’s governments to establish small and medium enterprise loan risk compensation funds to give adequate risk compensations to banking financial institutions that grant loans to small and medium enterprises based on the amount of increment of such loans. Financial institutions are encouraged to set up special departments to provide credit services for small and medium enterprises and grant more credit to small and medium enterprises. Enterprises which have foreign exchange demands for introducing advanced technologies or upgrading products or replacing the older generation of products by new ones may enjoy the preferential interest rate on import credit as offered by import-export banks.

IX. Deepening the financial reform, strengthening risk management and safeguarding the safety and stability of the financial market

27. Improving the work mechanism for monitoring and coping with the international financial crisis. We should monitor the new trends of the international financial crisis, study the possible channels for risk diffusion, track down and assess the trend of development and the impacts of the crisis. We should pay great attention to the fluidity of the domestic financial market, the fluidity of financial institutions and the changes in their assets and debts. Countermeasure plans for coping with such situations shall be initiated when necessary, and such measures as special fluidity support, peeling off non-performing assets, increasing capital and guaranteeing banks’ liabilities shall be taken to safeguard the safe and stable operation of the financial market.

28. Improving the financial regulatory system. Further efforts will be made to strengthen the communication and coordination between the central bank and the financial regulatory department, and more efforts will be made in functional supervision and prudent supervision. We’ll strengthen capital restraint and fluidity management, improve the market information disclosure system and do our best to prevent the occurrence of various financial risks.

29. Commercial banks and other financial institutions shall continue to deepen all reforms that are under way, improve their corporate governance structure, reinforce the basic management mechanism, internal control mechanism and risk prevention mechanism, improve and implement the conduction mechanism of moderately easy monetary policies, correctly handle the relationship between promoting economic development with finance and preventing financial risks, avoid stinting loans blindly at the time when the economy is going downward, improve the quality of economic development promoted by finance, and prevent low-level redundant construction.

30. Encouraging the local people’s governments to create favorable conditions for improving financial services. The local people’s governments shall create a favorable environment for protecting the creditor’s rights of the banks, preventing the evasion of bank debts, disposition of mortgaged assets, and conducting bankruptcy liquidations in a legal and orderly way. They shall continue to push forward the reform of the local financial institutions, maintain the local financial stability, facilitate the local credit system building, cultivate a social credit culture of good faith, and improve the local financial and ecological environment.

General Office of the State Council
December 8, 2008

(Source: http://www.lawinfochina.com/)