China plans to allocate 500 billion yuan ($89.62 billion) of capital that could be leveraged up to fast track new infrastructure projects as authorities seek to cushion the economy from US tariffs, according to people familiar with the matter.
Under the so-called “new financing policy tool,” the nation’s three policy banks will raise funds and buy stakes in projects, one of the people said, asking not to be identified discussing a private matter. The policy lenders may issue bonds or use other methods to tap financing, according to the person.
The initial capital injection of 500 billion yuan could amplify total investments by multiple times that amount, since it allows the projects to raise additional bank loans or other forms of financing, the person said.
While China’s top planning agency last month publicly telegraphed the new approach, its amount and other details were unknown. The funds will go to key projects in areas like artificial intelligence, the digital economy and consumption-related infrastructure, the person said, adding that the People’s Bank of China could provide liquidity support as needed during the process.
The program was first proposed by the decision-making Politburo at a late April meeting, along with other stimulus measures to boost growth. Now that authorities have delivered on some of their promises, such as cutting interest rates, the market’s attention is turning to the new tool and its purposes.
By raising more funds for investment, the mechanism would help China offset the drag from an uncertain export outlook by increasing domestic demand. Tensions have risen again in recent days with Washington, just weeks after the US and China agreed to a 90-day truce in their trade war.
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The PBOC and the National Development and Reform Commission didn’t immediately reply to requests for comment.
While it’s unclear when the injection will start, the NDRC vowed last month to decide on this year’s key construction projects by the end of June and to set up a financing tool to help address the problem of insufficient equity capital.
The Securities Times, a newspaper supervised by the official People’s Daily, ran a report Friday saying the PBOC’s pledged supplementary lending could be another possible source of funding for the injections.
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The mechanism is expected to be operational by the end of June and could help stabilize foreign shipments and expand investment, the Securities Times reported.
China in 2022 deployed a similar tool to counter the blow to the economy from Covid lockdowns, raising a total of 740 billion yuan through policy banks’ bonds. The proceeds were invested mainly in infrastructure projects, and the Ministry of Finance provided interest-payment subsidies funded by the central budget.
Separately, the Shanghai government said Friday that national financial authorities will announce “several major financial policies” during the Lujiazui forum in mid-June.
