bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Sylvia Ma

China’s top economic planner, the National Development and Reform Commission (NDRC), confirmed last month that Beijing was setting up a new “policy-based financial instrument” worth 500 billion yuan (US$70 billion).
The special financing tool was first proposed in April – when trade tensions between China and the United States were rapidly escalating – to provide an extra injection of funding to accelerate domestic innovation and support the economy.
It has the potential to drive trillions of yuan in lending in the coming years, analysts said.
In this explainer, the Post explores what the new financing tool is, how it will be used, and why it differs from previous similar instruments used by Beijing.
What is a policy-based financial instrument?
A policy-based financial instrument is a special financing mechanism used by the government to support major national projects.
It typically involves policy banks raising funds through bond issuance or low-cost central bank lending, with the funds channelled to targeted sectors where the NDRC leads project selection.
The policy funds often serve as seed capital to attract additional commercial bank lending.
This is the third time Beijing has used such a tool. In 2022, when China’s economy was under strain amid the Covid-19 pandemic, it created policy-based and developmental financial instruments worth about 740 billion yuan to fund key projects.
Between 2015 and 2017, the government also raised a total of 2 trillion yuan via a special construction fund – another form of policy-driven financing tool.


How will Beijing use this latest funding round?
China first revealed it was establishing a new policy-based financial instrument at the height of the trade war in April. Unlike previous policy-based financing tools, its main purpose is not to counter downward pressure on the economy, but to nurture new drivers of long-term growth, analysts said.
A major focus of the latest funding round will be supporting technological innovation, according to a research note published last week by the China International Capital Corporation (CICC), a partly state-owned Chinese multinational investment bank.
While previous instruments were mainly used to support traditional infrastructure projects, this one will direct funds to emerging sectors such as the digital economy, artificial intelligence and the low-altitude economy, according to the note.
Another focus will be supporting infrastructure projects in consumption-related industries – part of a broader effort by Beijing to boost household spending and help China’s economy rebalance towards domestic consumption.
Part of the funds will go to private firms, the note said, citing public information. If about 20 per cent of the capital is allocated, that would amount to roughly 100 billion yuan – “a sign of the government’s firm commitment to supporting the private economy,” the analysts noted.
They added that the instrument could help some exporters feeling the impact from higher tariffs, while also providing local governments with a capital boost to fill gaps in project funding.
How big an impact could it have?
CICC analysts said the new instrument was expected to boost lending, spur fixed-asset investment and help ease deflationary pressure.
Assuming the policy-based financial instrument covers half of project capital, it could drive about 4 trillion yuan of new loans over the next three to five years – lifting lending growth by 1.5 percentage points and total social financing growth by 1 percentage point, according to the note.
The initiative could also drive around 5 trillion yuan in fixed-asset investment. Of that, roughly 1 trillion yuan directed to private firms could raise private investment growth by about 4 percentage points.
“For banks, this could mark a turning point in the shortage of quality lending assets,” the note said, adding that the 4 trillion yuan in loan demand could lift corporate medium- and long-term loan growth to around 12 per cent.
The CICC added that if the resulting investment were to fully translate into demand deposits, it could push up the growth rate of the so-called M1 money supply – comprising cash in circulation and corporate demand deposits – by 4.5 percentage points, which in turn could help nudge inflation higher.


China’s economy can probably ride out storms in 2026

Chinese minister calls for more opening-up as key planning meeting looms

China to keep economic strategy in 2026, but slightly lower GDP target possible: analysts

The rise of a Beijing-led ‘Global South Consensus’

China’s economic stimulus

China has a new 500 billion yuan ‘financial instrument’. How will it be used?

An employee works at a chip factory in China’s eastern Shandong province. China is channelling more funding to support domestic innovation amid the trade war. Photo: AFP

An employee works at a factory producing semiconductor materials in China’s eastern Zhejiang province. China is channelling more funding to support domestic innovation amid the trade war. Photo: Getty Images

At China’s biggest export fair, the trade war’s rising toll is clear to see

Buyers visit a booth at the Canton Fair, in the southern Chinese city of Guangzhou, on October 15. US-China tensions have cast a shadow over the event, despite a rise in visitors. Photo: He Huifeng

US-China trade flare-up a short-term scare as both sides seek off-ramp: analysts

Fears of more trade escalation between the US and China mounted over the weekend after US President Donald Trump threatened to raise tariffs by 100 per cent on Chinese goods. Photo: Reuters

A container ship arrives at the Port of Oakland on Friday in Oakland, California. Photo: Getty Images via AFP

Which Chinese regions are being hit hardest by US tariffs?

Shipping containers are stacked at a port in Qingdao, in eastern China’s Shandong province on September 4. China’s exports to the United States have fallen amid the trade war, but there has been a wide divergence in terms of the trade war’s impact on different Chinese regions. Photo: AFP

Shipping containers are loaded onto cargo ships at a port in Qingdao, in eastern China’s Shandong province. China’s exports to the United States have fallen amid the trade war, but there has been a wide divergence in terms of the trade war’s impact on different Chinese regions. Photo: AFP

China must overcome tech ‘choke points’, People’s Daily warns, amid US tensions

China is striving to reduce its reliance on foreign technology, especially in the semiconductor sector, as the US tightens its chip export controls. Photo: Shutterstock

An employee works at a chip factory in China’s eastern Jiangsu province. China is striving to reduce its reliance on foreign technology, especially in the semiconductor sector, as the US tightens its chip export controls. Photo: AFP

China’s deflation fight drags on, amplifying calls for monetary easing

People shop at a supermarket in Mengzi, Yunnan province, on September 10. Photo: Xinhua

A woman shops at a supermarket in Zaozhuang, Shandong province, on September 10. Photo: Xinhua

Economy

China Economy

Policy

Tech

Beijing created the special financing tool to turbocharge domestic innovation and help the economy ride out the trade war


Beijing created the special financing tool to turbocharge domestic innovation and help the economy ride out the trade war.


China economy

Banking & finance

China technology

China innovators

National Development and Reform Commission

Infrastructure

China

China International Capital Corporation

Provide background, definition and detail of a specific topic, helping the reader understand how something works or what has happened in the past.  (Eg. What is Nafta? US and Mexico are on the verge of revising trade deal.)


Explainer

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Beijing created the special financing tool to turbocharge domestic innovation and help the economy ride out the trade war

What is a policy-based financial instrument?

Beijing created the special financing tool to turbocharge domestic innovation and help the economy ride out the trade war