(Photo: CGTN)

A series of fiscal, tax and financial incentives were approved at a meeting chaired by Premier Li Keqiang to encourage financial institutions to provide needed capital to small businesses. Selected banks will be allowed to cut their reserve requirement ratios (RRR) and reduce some lending rates for small firms and agricultural businesses. 

Jimmy Zhu, chief strategist of Fulleton Market said that the measures will have more positive impact on the bond market, then to boost the stock market, in terms of the target based on RRR cut. 

“The type of the bonds outperforming the other bonds, we think will be the interest rate bonds and also the high ranking investment bonds, corporate bonds. [For] The stock market, we think the property sector will continue to outperform to the rest of the stocks, given the policymakers are willing to ease the monetary policy,” said Zhu. 

Zhu added the likelihood of the shrinking of the US and China ten-year bond may add downward pressure on the Chinese currency. He expected China’s central bank to continue to set the yuan fixing to maintain flexibility. 

“So most likely, the dollar will continue to outperform, yuan will rise against a basket of currencies,” the strategist concluded.

Experts believe the new moves easing financial strains on small businesses are designed to tackle side effects from the ongoing deleveraging campaign as shadow banking instruments such as trust loans, entrusted loans and undiscounted bankers' acceptances appeared to decline significantly. That’s reflected by the smallest monthly growth of total social financing, China's broadest measure of credit, posted in May since July 2016.

Earlier this month, the People’s Bank of China (PBOC) expanded the kinds of collateral it accepts for its medium-term lending facility, which is a move also aimed at helping businesses, particularly those in targeted sectors, gain more access to financing.