ExplainerChina has a new 500 billion yuan ‘financial instrument’. How will it be used?
Beijing created the special financing tool to turbocharge domestic innovation and help the economy ride out the trade war
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.