China’s central bank initiates re-loaning program to support SMEs’ technology innovation and upgrade

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 re-loaning program for scientific and technological innovation and technology transformation, aiming to boost financial support for technology transformation and equipment renewal of small and medium-sized high-tech companies.

The PBC said that the new re-loaning tool is the implementation and promotion of the 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 re-loaning tool reflects the full support for technology-based SMEs that are in their initial growing-up stage. The move shows the financial support for digital, intelligent, high-end and green transformation and equipment upgrade in key industries which will promote the development of new quality productive forces in China.

The amount earmarked for the re-loaning program is 500 billion yuan ($69 billion), with the yearly interest rate set at 1.75 percent, and the endurance of the re-loans lasts one year, which can be renewed twice every year, according to a notice published by the PBC on Sunday.

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

The establishment of re-loaning program for technological transformation of traditional enterprises will help guide financial institutions to provide credit support to high-tech SMEs in their growing-up 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 refinancing facility are clear-cut, including sci-tech SMEs, as well as the 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 loan. The refinancing rate established is 1.75 percent, which is significantly lower than the latest offer of 3.45 percent for 1-year loan prime rate (LPR).

“The re-loan tool is also the concrete implementation of the arrangement of the Central Financial Work Conference and the Central Economic Work Conference, which put sci-tech innovation among its priorities,” said Yang.

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

In March during the two sessions, the PBC announced that re-loans for scientific and technological innovation and technological transformation would be established, the bank governor said at a press conference on economy for the second session of the 14th National People’s Congress on March 6.

Analysts pointed that the establishment of the new re-loan tool is in line with China’s key policy agenda – trade-in of consumer goods and large-scale equipment renewal, which aims to boost consumption from the demand and supply side. Multiple departments have recently announced new rules or rolled out action plans. 

Earlier on Wednesday, China’s financial regulators jointly announced the removal of a regulatory cap on automotive purchasing loans for self-use combustion engine cars and new-energy vehicles (NEV), meaning zero down payments are allowed in car purchasing, aiming 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 included a policy roadmap. The economic planner encouraged private companies to participate in the trade-in program to boost consumption.

At present, 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.