Introduction to China’s New Economic Measures
The People’s Bank of China has introduced a set of measures to boost technological innovation. These measures aim to support small and medium-sized private companies, with a focus on those that invest heavily in research and development. A senior researcher at the National Institution for Finance and Development has shared insights on the significance of these measures.
What the New Measures Entail
The central bank will provide a relending quota of 1 trillion yuan to small and medium-sized private companies. Additionally, the relending quota for technological innovation and upgrades will be increased by 400 billion yuan. The key aspect of these measures is the change in lending criteria, which now prioritizes the intensity of investment in research and development.
A Shift in Lending Criteria
For the first time, the intensity of research and development investment has become a crucial factor in determining which private SMEs can access finance. This marks a significant departure from the previous approach, which relied heavily on static indicators such as asset size, collateral, and credit records. The new policy recognizes the market value and creditworthiness of a company’s intellectual capital and innovation activities.
Supporting Innovation-Oriented SMEs
By expanding lending support to private innovation-oriented SMEs with high R&D intensity, the new measures will directly ease cash-flow pressures. The increased scale and coverage of low-cost capital from the central bank will encourage commercial banks to boost credit supply, reduce lending rates, and provide more stable cash-flow support for R&D endeavors and business operations.
Integration of Bond Financing Facilities
Another significant reform is the integration of bond financing facilities for private enterprises with science and technology innovation bond risk-sharing tools. This creates a larger, more defined pool of risk-sharing funds and forms a unified and flexible risk-sharing framework. The integration sends a strong signal that policy support for innovation-oriented private enterprises will be sustained.
Benefits for Private Tech Firms
The unification and simplification of management rules will lower participation barriers for financial institutions and expand the pool of eligible firms. More medium- to high-credit private tech companies with strong growth potential will gain access to bond market financing, improving market acceptance and overall financing availability. Unified credit enhancement support will also narrow credit spreads, improve liquidity, and reduce financing costs.
Cost Benefits
From a cost perspective, relending reduces banks’ funding costs and encourages them to provide medium- and long-term loans to tech firms at more favorable rates. The bond risk-sharing tool helps reduce bond issuance yields and underwriting costs, enabling firms to issue long-term bonds at lower interest rates.
Conclusion
The new measures introduced by the People’s Bank of China are poised to significantly support technological innovation in the country. By recognizing the value of intellectual capital and innovation activities, and by providing more accessible and affordable financing options, these measures will help drive growth and development in China’s tech sector. As the country continues to evolve economically, the impact of these measures will be crucial in fostering a more innovative and competitive economy.
