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Innovative lending boosts real economy
2017-11-06, JIANG XUEQING

China’s financial institutions, or FIs, are quietly bringing about a revolution in the way critical funding reaches the real economy.

During the two-day National Financial Work Conference in July, President Xi Jinping said that serving the real economy is the bounden duty and purpose of FIs. Since then, innovative lending has accelerated, bolstering the part of the economy that produces goods and services.

The scope of this financial renaissance extends far beyond the shores of China, and there is an outstanding example in the Caribbean island of Jamaica.

On Oct 6, at 9 pm local time, Alpart’s alumina processing plant, which was resurrected by a Chinese firm, produced its first batch of alumina products in eight years.

Owned by the Alumina Partners of Jamaica, or Alpart, the plant was formerly under United Co Rusal, a Russian aluminum producer, which shut it in 2009 due to losses caused by a decline in demand for alumina and a sharp rise in costs.

And the facility remained shut until June 21 when Jiuquan Iron and Steel (Group) Co, or JISCO, which bought it from Rusal for $299 million last year, reopened it to turn it around.

The acquisition was made possible by a $170 million loan that JISCO received from the China Development Bank (CDB), a Beijing-headquartered development FI.

It was as if the CDB could anticipate President Xi’s call to strengthen the financial sector’s capabilities to serve the real economy, which he gave at the 19th National Congress of the Communist Party of China on Oct 18. That call followed his directive earlier that FIs should channel more resources into major areas and weak segments of economic and social development.

As a result of the acquisition of Alpart, JISCO’s aluminum smelting subsidiary in Northwest China’s Gansu province will receive 1.65 million metric tons of alumina annually for electrolytic aluminum production.

Yu Zhipeng, senior manager of the general affairs department of JISCO Alpart Jamaica, said: “Apart from raw material supply, the acquisition of Alpart will drive the domestic alumina market, which is picking up gradually. It will also promote cooperation between JISCO and potential partners in Jamaica by introducing advanced Chinese technologies to Jamaica and leading China’s alumina-related industries to the Caribbean country.”

The CDB served as liaison between JISCO and the government of Jamaica, conducted research, and coordinated on-site investigations before the takeover.

In addition to the first loan, the bank pledged a further $150 million to help Alpart restore production and improve its production capacity.

Following the acquisition, JISCO started developing an industrial eco-system in Jamaica involving a new industrial park, where a wide range of products, including 3.65 million tons of alumina, 450,000 tons of electrolytic aluminum and 600,000 tons of cement, would be made, said Li Jianjiang, deputy managing director of the CDB’s Gansu branch.

“Total investments in the industrial park are expected to go beyond $2 billion, and the CDB will take the lead in providing financing for its construction,” Li said.

Just like the CDB, many other banks, large and small, have stepped up support for the real economy.

For instance, China Construction Bank (CCB), the nation’s second-largest commercial lender by assets, offered an $11.2 million loan to Zhongpin Food Co, an agricultural product processor and food manufacturer in Central China’s Henan province, via a cross-border financing service.

Ben Baoke, director of Zhongpin Food, said: “The service helped lower our annualized financing cost by 40 basis points to 3.95 percent, compared with the one-year benchmark lending rate of 4.35 percent during the same period.”

In addition to lending, CCB took various measures to support the food manufacturer. CCB International (Holdings), an investment services company owned by the bank, contributed 130 million yuan ($20 million) to a contract fund that invested in the equity of Zhongpin Food, paving the way for the company to list on China’s A-share market.

The bank also offered online financing services to high-quality upstream and downstream companies that set up shop on the e-commerce marketplace of Zhongpin Food.

CCB also connected its online banking system with the enterprise resource planning system of the food manufacturer. It built a supply chain management and financial service platform by integrating information resources of both parties.

CCB again innovated its financial backing practices to help BYD Co, a Shenzhen-based electric car maker.

Last year, CCB underwrote BYD’s perpetual bonds that were issued for 400 million yuan in China’s interbank bond market with a 5.1 percent coupon. With the proceeds, BYD sought to repay bank loans and satisfy its medium- and long-term capital needs.

As one of the underwriters, CCB helped BYD file the application for bond issuance and communicate with credit rating agencies and institutional investors in the interbank bond market, in addition to providing financial advisory services.

Alpart, Zhongpin and BYD are but three shining examples of how the real economy players have been benefiting from the banking sector’s renewed financial push.

As of June 30, outstanding loans related to agriculture, farmers and rural areas had increased 9.9 percent year-on-year to 30 trillion yuan.

Outstanding loans relating to small and micro enterprises, and individual businesses, rose 14.7 percent to 28.62 trillion yuan, according to the China Banking Regulatory Commission.

Banking regulators and local governments have launched policies to encourage banks to give stronger support to the real economy.

Consequently, technology startups with high growth potential benefited. For instance, the Suzhou municipal government founded a 1 billion yuan credit guarantee fund to help asset-light, innovative companies at an early stage of development obtain bank loans more easily.

Using the credit guarantee fund, a qualified company can apply for a loan of up to 5 million yuan for a term of six months and above without any collateral. If a company defaults on a bank loan, the fund will share 65 percent of the loan loss along with the bank (20 percent) and relevant guarantee or insurance companies (15 percent).


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