SCIO briefing on the efforts to support the coordinated and orderly resumption of industrial chain operations
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E-mail China.org.cn, March 18, 2020
CCTV:
I have two questions for the speakers. First, what difficulties are there in speeding up coordinated work resumption within the various industrial chains? What specific measures have been or will be introduced to address them? Second, on the part of financial sector, what supportive policies will help open up industrial chains and facilitate cash flow? Thank you.
Xin Guobin:
Thank you for your questions. On Feb. 3, General Secretary Xi Jinping called for efforts to coordinate epidemic prevention and control with economic and social development, and ensure stable performance in six key areas (namely, stability in employment, finance, foreign trade, foreign investment, domestic investment, and market expectations) at a meeting of the Standing Committee of the Political Bureau of the CPC Central Committee. Since then, local authorities and relevant departments have acted to promote the resumption of work and productive operations. Thanks to their concerted efforts, positive progress has been achieved. However, when resuming operation, enterprises still face a series of difficulties and problems, which we believe, involve the following five aspects.
First, there are "pain points" in personnel movement. Due to varying epidemic situation as well as prevention and control levels in different regions, some enterprises are still suffering from a labor shortage, with staff members holding key posts stranded in hard-hit regions. For example, some technical personnel from Hubei province take the job of debugging the equipment for the production of key epidemic control supplies such as protective suits at factories in Guangdong. Large demand of such equipment in Guangdong has added new urgency of those technical personnel, most of whom from Xiantao in Hubei, to return to their work. However, the lockdown of Xiantao has left them no way out, affecting the debugging work of the equipment manufacturers to some extent.
Second, there are logistical obstructions. The "last mile" problem of transportation has not been entirely resolved. The regions hard-hit by the outbreak are still subject to restrictions on logistics, making resumption of production difficult for some enterprises occupying crucial positions in the industrial chains.
Third, there are breakpoints in the cash flow of small and medium-sized enterprises (SMEs). Various supportive measures have eased the financing strain on SMEs, but some enterprises in certain regions have been complaining that the measures are not readily available due to failure in implementation.
Fourth, "sticking points" remain in the supply of raw materials. Some enterprises are facing a lack of raw materials, as some important raw material enterprises have yet to resume operation. With modernized production and management systems, many enterprises rarely stockpile raw materials so as to reduce their costs, thus leading to the shortages observed during the viral outbreak.
Fifth, there is difficulty in offering sufficient epidemic control supplies. Despite a great increase in output, the supply gap still persists as a result of huge demand created by the resumption of work and production. For example, enterprises are facing a shortfall of facial masks and disinfection products when resuming operation.
Regarding those problems, the authorities concerned have introduced a series of policies and measures playing an effective role in reducing the difficulties challenging the enterprises in resuming work and production. However, the implementation of those policies should still be reinforced.
In the next phase, the Ministry of Industry and Information Technology (MIIT) will step up efforts to better communicate and coordinate with other departments to address difficulties and concrete problems. A number of tasks will be highlighted as follows:
First, the essential industrial chains will resume operation in what we expected to be an orderly fashion. Regarding the requirement issued at the Executive Meeting of the State Council, MIIT will join hands with other authorities and take a lead in setting up a team designated to address cross-departmental and cross-regional problems affecting smooth resumption of work in key industries. Because different departments are in charge of different production factors and resources, the team needs to remove obstacles and solve concrete problems reflected by the industries concerned. Meanwhile, including officials from fiscal, financial and transportation sectors, the team is supposed to target problems concerning logistics, migrant population movements and capital flows, to name just a few, ensuring the hammer really hits the nail. We will give full play to the driving force of leading enterprises and make a list of them and their key partners, with their major concerns to be addressed by the team. That is how the production and work of upstream and downstream industries combined will continue to resume operations, and how the industrial ecology is further remedied to ensure stable supply chains to meet demand from both home and abroad.
Second, the difficulties facing micro, small and medium-sized enterprises should be much alleviated. The ubiquitous SMEs, indispensable to the industrial system, are a major part in various industrial chains. The MIIT will give full play to the coordinated mechanism of the State Council's Leading Group Office for Stimulating the Development of SMEs with the implementation of preferential financial, fiscal and tax policies devised for those enterprises. At the same time, State-owned big enterprises and governments at all levels should pay off debts owed to private firms and SMEs and prevent debts from snowballing during the epidemic period. We will continue to explore more policies to suspend the charges considered legitimate at ordinary times but inappropriate in this critical period in an attempt to further reduce costs of SMEs.
Third, the efforts to stimulate the resumption of normal operations in the industrial chains will be strengthened. The MIIT will team up with other departments to stimulate the expansion of domestic demand, foster new-type consumption and help secure sales of common industries, like automobile manufacturing. We will work to boost emerging industries and new business models, such as, application of technology scenarios supported by 5G, remote medical treatment and online education and online office. At the same time, the ministry will step up efforts to accelerate the constructions of major industrial and telecommunication projects, including, infrastructure built for the 5G network, the Internet of Things, big data, artificial intelligence and smart cities. The projects under construction will be encouraged to resume normal operations and reach target outputs as soon as possible. We will continue to follow a number of major projects and programs, especially those with substantial foreign investments to be launched to boost consumption demands for raw materials.
I will end my briefing here, thank you.
Yang Liping:
Thank you for the question about how to open up capital flows on the industrial chain. When Mr. Xin introduced the situation just now, I noticed that there are two existing issues and difficulties mentioned in the introduction. These are the "breakpoint" in the cash flow, as well as the financing difficulties faced by SMEs affected by the epidemic. Now that production is resuming, the progress of each industry and enterprise will be different. Industrial chains are interdependent, so if one link is affected or blocked, companies that lie upstream and downstream on the industrial chain may not run smoothly. The resumption of production in the industrial chain requires financial support, so there needs to be a stable flow of funds. Therefore we must identify the "blocking points" which disrupt the stable flow of funds. We think the "blocking points" of capital flow lie in two main areas. First, core enterprises occupy the funds of upstream and downstream SMEs. Earlier, Mr. Xin mentioned this issue, in which he addressed the appropriation of funds. Second, it is difficult for SMEs to raise funds, and Mr. Xin also mentioned that just now.
In view of these two "blocking points", the Banking and Insurance Regulatory Commission is ready to step up its efforts in two main areas.
The first aspect is to stabilize core enterprises that are critical to their relevant industrial chains. To stabilize the chain, we must first stabilize the head. Core enterprise affected by the epidemic may be encountering financial difficulties. Therefore, we encourage banks to increase their liquidity support, including credit limit increases, to help stabilize their production and operation.
Second, we hope that core enterprise can help upstream and downstream micro, small and medium-sized enterprises. We will do this by increasing credit, loans, or helping the core enterprises issuing bonds, which will bring them more funds. After these businesses have funds, they can pay upstream supply companies that have given them goods. We will support businesses to get the funds in cash or in real-time payments, and not by payment notices, or deferred payments. Once core enterprises have credit or bond funds, we want them to transfer the money to upstream enterprises in real time, so the upstream enterprises will also have the funds to stock. In cases in which the upstream supplier has not delivered the goods, but has received an order, we also encourage core enterprise to advance payments to the upstream supplier, so the upstream supplier can better prepare the goods. This is how core enterprises can help upstream and downstream small and medium-sized enterprises, reducing the amount of capital stuck in the core enterprises.
As for the downstream buyers, in practice, some core enterprises use their strong position in the industrial chain to demand a pay before shipment policy. They delay the payment to upstream supplies, and collect the money from downstream distributors, and tie up a lot of money. The downstream buyer's advance payment is actually a 100 percent prepayment. In this case, we will also grant credit to the core enterprise, so that the core enterprise has enough money to produce and operate on its own. We will support them to reduce the proportion of prepayments to downstream companies. For example, if you have already received money and can operate normally, you don't need your prepayments to be 100%. 10%, 15% or 20%, 30% of prepayment would be a buffer for downstream companies' cash flow and capital chain. This is the first aspect, that is, how we will firmly support core enterprises in the industrial chain to open up "blocking points".
Secondly, we are offering direct financing support for upstream and downstream firms on the industrial chain. We are taking the following measures. First, banks will pitch in if core enterprises do not make cash payment or pre-payment to upstream suppliers. If upstream suppliers can provide contracts or related invoices, which evidence that they have got orders from core enterprises, banks will directly offer financing support for their receivable accounts. If core enterprises don't make cash payments, suppliers can present related certificates of the transaction to the bank, which will then offer the suppliers financing for the receivable accounts. During the epidemic control period, we encourage banks to improve financing ratio appropriately so as to expand fund sources and increase liquidity. As for downstream dealers, if core enterprises do not lower the ratios of advance payments, we encourage banks to conduct pledge financing based on warehouse receipts or inventories, or conduct financing for advance payments based on orders. If you have a true transaction background and you have stock at the warehouse, the receipt or stock can be used as pledge to acquire financing from the bank. As for enterprises which are affected by the epidemic but have good credit status, banks can lower the security deposit ratio of the acceptance bills for them and reduce their commission charges so as to increase their cash flow.
Friends from the media have noticed that the above-mentioned measures should be based on real trading. Banks should step up risk prevention, while core enterprises, as well as upstream and downstream firms, should all be honest and not cheat. If you do not have an actual transaction but apply for this kind of financing, it would violate laws and regulation. If a financing application is based on real transactions, banks can offer sufficient support.
To smooth cash flow, we are mainly applying two measures: one is by financing core enterprises which link upstream and downstream enterprises; the other is to encourage banks to provide financing support directly to upstream and downstream micro, small and medium-sized enterprises. Thank you.
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