Despite Beijing’s effort to mobilize the state’s financial firepower to combat the coronavirus epidemic, the results have exposed vulnerabilities in the system that have led to inefficiency and sometimes waste.
China’s central bank announced plans in early February to further bolster the economy and combat the coronavirus crisis with a new 300 billion yuan ($42.8 billion) stimulus package of low interest loans targeting struggling firms. Here are China's top 3 risks to effective economic stimulation through emergency funding.
1. Unqualified, Cash-Rich Applicants
According to a «Caixin» report, the list of qualified applicants for low-rate loans includes cash-rich state-owned enterprises (SOE) such as food processor Cofco and Hong Kong-listed pharmaceutical Sinopharm Group. The entrance of large conglomerates with deep pockets has sparked concerns about the relative urgency of their need for emergency loans, though the central bank later noted that some funding could be used to aid epidemic control and prevention in addition to much-needed cash flow support.
Such concerns are believed to have led 48 mostly SOEs to be cut from the latest list of qualified applicants. The 48 companies removed from the list include five coal producers, five local government financing vehicles and 38 companies transportation firms.
2. Funds Misused
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