China pledges US$69 billion in credit backing for tech after resurrecting dormant financial tools

The People’s Bank of China will reactivate two tools to stimulate lending for tech development and equipment upgrades, both major economic priorities

Central bank will refinance US$69 billion for commercial banks that provide loans to qualifying enterprises, spurring credit and boosting activity

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China’s central bank will reactivate financial tools to incentivise the issuance of credit in support of its tech industry. Photo: NurPhoto via Getty Images

Published: 11:00am, 9 Apr 2024Updated: 11:06am, 9 Apr 2024

China has announced it would renew the use of two relending tools previously levied to mitigate the shocks from the coronavirus pandemic, providing a combined 500 billion yuan (US$69.1 billion) in incentives for loans undergirding tech innovation and large-scale equipment upgrades – two areas that have been made explicit economic priorities by the country’s leadership.

The move has prompted guessing from market players over the extent to which authorities are willing to engage in monetary loosening, especially as the US Federal Reserve has delayed its anticipated interest rate cuts and the Chinese economy leaves the first quarter of 2024 on stronger footing.

Under the new programme, the People’s Bank of China (PBOC) will offer relending facilities to 21 banks at a rate of 1.75 per cent and a term of one year.

The refinancing will cover 60 per cent of the principal for qualifying loans to tech-based small and medium-sized enterprises, and can be extended twice for an additional year each time, the central bank said in an online statement.

“[The loans] will guide financial institutions to provide credit support to tech-focused enterprises in their start-up and growth phases, as well as projects focusing on digitalisation, intelligence enhancement, high-end upgrades, eco-friendly technological transformation and equipment renewal in key sectors,” it said.

The PBOC had 17 structural support tools in active use by the end of last year, with an cumulative outstanding size of 7.5 trillion yuan – 16.4 per cent of central bank assets.

These targeted monetary levers came to greater attention in 2014, when pledged supplementary lending was first used to provide direct loans to commercial banks in efforts to renovate outdated residential blocks.

Of these, 13 – including loans and relending for small businesses, toll roads, private firms, property delivery, logistics and carbon emissions reductions – were launched as temporary measures during the pandemic. Seven have already expired.