 "China pumps fresh $69 billion credit in tech sector for equipment upgrades")
China has announced a plan to reinstate two relending mechanisms – tried out before – to offset the economic impact of Covid-19, according to a report in the Hong Kong’s ‘South China Morning Post’ (SCMP) newspaper.
The People's Bank of China (PBOC) will provide loans through 21 banks to small and midsize technology companies at an interest rate of 1.75 per cent. The loans are eligible for two extensions, each lasting up to one year, the report said.
The move, announced on Sunday, comes amid challenges posed to the Chinese economy by a property crisis and geopolitical tensions with key trading partners. China's policymakers are aiming to enhance liquidity and bolster confidence in the world's second-largest economy.
Relending mechanisms
These measures will allocate a combined 500 billion yuan (US $69.1 billion) to incentivise loans-supporting technological innovation and large-scale equipment upgrades – two sectors that have been explicitly prioritised by the country's leadership, said the report.
The refinancing programme will cover 60 per cent of the principal amount for eligible loans extended to technology-focused small and medium-sized enterprises (SMEs) and can be renewed twice, each time for an additional year.
By the end of last year, the PBOC had 17 active structural support tools with a cumulative outstanding size of 7.5 trillion yuan – equivalent to 16.4 per cent of central bank assets.
What are China’s relending programmes?
These targeted monetary instruments gained prominence in 2014 when pledged supplementary lending was first utilised to directly provide loans to commercial banks to renovate outdated residential buildings.
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Among the tools, 13 were introduced as temporary measures during the pandemic to support small businesses, toll roads, private firms, property delivery, logistics, and carbon emissions reduction. Seven of them have already expired.
SCMP said the move has sparked speculation among market participants regarding the extent to which Chinese authorities are willing to implement monetary easing, in light of the US Federal Reserve postponing anticipated interest rate adjustments and the Chinese economy concluding the first quarter of 2024 on a stronger footing.
The previous relending mechanism for technology, with a quota of 400 billion yuan (US $55.2 billion), was initiated in April 2022 and has since concluded. Similarly, the earlier equipment renovation program, with a quota of 200 billion yuan (US $27.6 billion), was active from September to December 2022.
Beijing guidelines
This relending programme aligns with Beijing's guidelines for domestic banks, encouraging them to provide funding for five essential finance categories outlined by President Xi Jinping: technology finance, green finance, inclusive finance, pension finance, and digital finance.
Furthermore, it corresponds with the objective of large-scale equipment upgrades mentioned during the February meeting of the Central Financial and Economic Affairs Commission. This objective serves dual purposes: Leveraging the country's substantial fixed-asset investment to stimulate economic growth and advancing its vast manufacturing sector, the Hong Kong-daily said.
Structural tools such as the relending program are designed to assist China as it grapples with a persistent downturn in the property market and fragile investor confidence, challenges that will test the country's ambitions to achieve a 5 per cent economic growth rate this year, said SCMP.