MNI INTERVIEW: PBOC To Boost Tech Loans Via Structural Tools

The People’s Bank of China will increasingly rely on low-cost relending tools to encourage banks to expand financing for key sectors and support economic restructuring, with a particular focus on technology firms that struggle to secure credit from traditional lenders due to stricter collateral and asset-stability requirements, a prominent policy advisor and banking expert told MNI.

Guo Tianyong, deputy chair of the Beijing Committee of the China National Democratic Construction Association, said supporting tech innovation has become a key task for the central bank and financial institutions, noting that Beijing views tech self-reliance and controllability in core technologies as essential for global competitiveness.

However, bank credit tends to favour firms with sufficient collateral and stable cash flows, while tech companies, particularly start-ups, are mostly asset-light with immature profit models, said Guo, also director of the China Banking Research Center at the Central University of Finance and Economics. (See MNI: Relaxed Policy To Drive PBOC Over Next Five Years - Advrs)

The PBOC established a scientific and technological innovation relending facility in 2024 with a CNY800 billion quota and a 1.75% one-year relending rate so far,  compared with the 3.0% one-year Loan Prime Rate. As of May, the Bank had provided CNY614 billion in related debt, while the nationwide balance of science and technology loans reached CNY44.1 trillion in June, up 12.5% y/y and 5.8 percentage points faster than total credit growth over the same period.

In addition to policy support, banks need to develop risk assessment systems suited to tech firms, raise their risk tolerance and explore innovative models such as including data assets on balance sheets, Guo suggested. Banks could – within the framework of policy support and compliance – establish asset investment companies (AICs) to take equity stakes in tech firms, given their higher funding risks and long return horizons, he added, noting that, as independent legal entities, their investment risks would not be transmitted to parent banks’ balance sheets, safeguarding depositors’ funds.

According to regulators, all six state-owned banks have set up AICs. More joint-stock lenders are expected to follow once they obtain licenses, Guo added. 

STRUCTURAL TOOLS

China is entering a period of low interest rates and weak demand, both in credit and consumption, as the era of heavy real-estate investment fades and tech investment remains insufficient to fill the gap, Guo said.

Amid subdued price levels, the past scenario in which broad money supply (M2) growth far outpaced nominal GDP growth is unlikely to repeat, making it difficult for the central bank to stimulate credit. Simultaneously, room for traditional policy tools such as reserve-requirement-ratio cuts and interest-rate reductions is narrowing, he noted.

Any interest-rate cut must consider bank operations, as net interest margins have fallen to historic lows, he continued. In addition, household deposits remain an important source of investment income for residents, making it impossible to lower deposit rates to zero. Doing so could trigger large deposit outflows, a major bank risk, he warned.

Over the next five years, as economic restructuring progresses, structural tools will likely gain prominence, Guo predicted, noting the central bank is also expected to increase its purchases of treasury bonds to support fiscal expansion for economic restructuring, a strategy Western economies often use to counter deflation.

As of May, the PBOC’s structural monetary policy tools' total quota exceeded CNY6.4 trillion, accounting for about 14% of the Bank’s balance sheet, with funds directed toward key sectors including technology, green growth, inclusive finance, aging services, and digital development. From a long-term perspective, as marketisation deepens, monetary policy should further strengthen its role in aggregate tools, Guo said.

BANK CHALLENGES

Guo said Chinese banks’ “golden decade” of rapid expansion has ended, as corporate profitability and funding demand remain weak, noting that few banks have managed to record year-on-year growth in operating revenue.

Falling real-estate prices have eroded the value of bank collateral, representing a potential risk, he said. Banks must seize the opportunities presented by tech innovation and transform their business models, or risk further pressure from the slowing economy, Guo warned. (See MNI INTERVIEW: China’s Growth To Slow Without Model Changes–Wu)

Although equity and bond markets are growing sources of financing for the tech sector, banks remain irreplaceable given they hold about 90% of total financial institution assets, he concluded.