The People's Bank of China, the central bank, has notified all commercial banks that their annual loan quota has been raised to help fund the growth of small enterprises, which have been hit hardest by the credit control measures initiated since last year to curb inflation.

The increase is 5 percent for national commercial banks and 10 percent for local commercial banks, taking into consideration that SMEs make up a larger proportion of their clientele.

The loan quota for each bank is set by the central bank annually.

An official of Shenzhen Development Bank yesterday told China Daily that the bank has been informed of the quota.

"Our bank, along with other commercial banks, will closely follow the policy adjustments by the central bank and offer our full support to small and medium-sized enterprises, which are playing an increasingly important role in driving the national economy," said the official. "Our bank has always placed great importance on developing close business links with SMEs in the region."

Compared with national commercial banks, local commercial banks are widely seen as the major loan providers for small and medium-sized enterprises. Economists and industry analysts said the newly increased loan quota would go mainly to SMEs and largely help small businesses out of capital shortage.

Jing Ulrich, chairman of China Equities at JPMorgan Securities, yesterday told China Daily: "The decision by the central bank to increase the 2008 loan quota reflects a shift in policymakers' priorities toward ensuring robust growth in the second half of the year."

Ulrich added: "Increasing loans to small businesses may support the manufacturing and export sectors that have been hit hard by the slowdown in demand in the US and the appreciation of the renminbi."

Zhao Xijun, a professor of finance at Renmin University of China, said the latest move by the central bank is aimed at selective easing of bank lending to support small businesses in some needy sectors rather than an overall credit relaxation covering all companies in all industries.

"The latest increase in loan quota is largely aimed at helping enterprises in the textile and garment sectors and other exporters whose earnings have been squeezed by rising costs and weakening global demand," Zhao said.

"But the government control on credit to other sectors is not expected to be eased, as it is still considered crucial to the fight against inflation," Zhao added.

Ulrich at JPMorgan said: "With a strong fiscal position, the government is well placed to introduce further targeted pro-growth policies should the economy show further signs of slower growth in the months ahead."

(China Daily August 6, 2008)