China’s central bank launches relending program to support SMEs’ technology innovation and upgrading
Published: Apr 07, 2024 05:21 PM
Photo shows an exterior view of the People's Bank of China in Beijing. Photo: Xinhua

Photo shows an exterior view of the People's Bank of China in Beijing. Photo: Xinhua

The People's Bank of China (PBC), the central bank, on Sunday established a relending program for scientific and technological innovation and transformation, aiming to boost financial support for technology transformation and equipment renewal of small and medium-sized enterprises (SMEs) in the high-tech sector.

The PBC said that the tool will support a new round of large-scale equipment renewals and trade-ins of consumer goods, deployed in an action plan released by the State Council, China's cabinet, on March 13.

Analysts said that the new tool reflects full support for technology-based SMEs that are in their initial stages of growth. The move shows financial support for digital, intelligent, high-end and green transformation and equipment upgrades in key industries, which will promote the development of new quality productive forces in China.

The amount earmarked for the program is 500 billion yuan ($69 billion), with the yearly interest rate set at 1.75 percent, and the term of the relending lasts one year, according to a notice published by the PBC on Sunday.

The funds will be issued to 21 financial institutions. After an evaluation of operational risks, the financial institutions can independently decide whether to grant loans and set the conditions for relending in accordance with the applications of the enterprises, the central bank said.

The relending program will help guide financial institutions to provide credit support to high-tech SMEs in their growing stage, as well as their technological transformation using digital, intelligent, high-end and green technologies, and equipment renewal projects in key areas, under the premise of independent decision-making and risk-taking, the central bank said.

The targets for the relending facility are clear-cut, including sci-tech SMEs, as well as renewal projects in key areas of technological transformation and equipment, Yang Chang, chief analyst at Zhongtai Securities Research Institute, told the Global Times on Sunday.

Yang noted that loan rates are more favorable under the new PBC special financing. The refinancing rate established is 1.75 percent, which is significantly lower than the latest offer of 3.45 percent for the one-year loan prime rate.

"The relending tool is also a concrete implementation of the arrangement of the Central Financial Work Conference and the Central Economic Work Conference, which put sci-tech innovation among the priorities," said Yang.

The Central Economic Work Conference, held in December 2023, said that financial institutions should be encouraged to scale up support for scientific and technological innovation, green transformation, inclusive finance for small and micro-sized businesses, and the digital economy, according to the official release.

In March, during the annual two sessions, the PBC announced that relending facilities for scientific and technological innovation and technological transformation would be established. 

Analysts said that the new relending facility is in line with China's key policy agenda - trade-ins of consumer goods and large-scale equipment renewals - which aims to boost consumption from the demand and supply sides. Multiple departments have recently announced new rules or rolled out action plans. 

On Wednesday, China's financial regulators jointly announced the removal of a regulatory cap on vehicle loans for self-use internal combustion engine cars and new-energy vehicles, meaning that zero down payments are allowed for car purchases, to boost the trade-in program in the auto sector.

On April 2, China's top economic planner held discussions with six private enterprises on work to replace old items with new ones, which was included in a policy roadmap. The economic planner encouraged private companies to participate in the trade-in program to boost consumption.

The focus of China's economic work is still on technological transformation and upgrading or on raising the level of industrial productivity through science and technology, meaning new quality productive forces, new forms of industrialization and other industrial upgrading, Pan Helin, a member of the Expert Committee for Information and Communication Economy under the Ministry of Industry and Information Technology, told the Global Times on Sunday.