Facing pressure from US tariff policies since April, experts predict that policy financial institutions may introduce new policy financial tools, such as export buyer’s credit, to provide targeted support for foreign trade enterprises and mitigate the impact of external demand fluctuations. Fiscal and monetary policies are expected to offer complementary support through the expansion of the Pledged Supplemental Lending (PSL) program and central government interest subsidies to facilitate the implementation of these new tools.
Since the April 25 meeting of the Political Bureau of the CPC Central Committee called for “accelerating the implementation of more proactive and effective macro policies,” financial departments have responded swiftly, rolling out a package of financial policies in May to stabilize markets and expectations. Measures such as reserve requirement ratio cuts, interest rate reductions, new structural monetary policy tools, and the “tech board” in the bond market are being implemented gradually. Although the package of financial policies continues to exert their effects, structural contradictions in some areas remain unresolved, necessitating the introduction of new policy financial tools. Market institutions anticipate their launch in the second quarter. These new tools may innovatively support foreign trade stability and expand effective investment. In the view of interviewed experts, fiscal and monetary policies are expected to provide support through the expansion of PSL and central government interest subsidies. The highly anticipated innovative tools differ from ordinary commercial finance; policy finance actively plays a role in areas where market functions are insufficient, serving as “quasi-fiscal” instruments. In 2022, three policy financial institutions created and disbursed approximately 740 billion yuan in policy and development financial tools, leading banks to grant cumulative credit lines of over 3.5 trillion yuan for projects supported by these tools, demonstrating significant financial leverage and investment stimulation effects. With the April meeting of the Political Bureau of the CPC Central Committee, after a three-year interval, once again deploying the establishment of new policy financial tools, the market began to anticipate stronger financial support for key areas and weak links. Since May 7, the “one bank, one bureau, one commission” have released a package of financial policy measures, and the policy effects are now. “Structural monetary policy tools, such as service consumption and pension relending, actually function similarly to policy financial tools,” said Tian Lihui, Dean of the Institute of Financial Development at Nankai University, to the Securities Times. Although existing policies have achieved certain results, considering the complexity of domestic and international economic situations, it is still necessary to establish new policy financial tools. The package of financial policy measures is not the end of this round of countercyclical adjustment policies. At the May 7 press conference of the State Council Information Office, People’s Bank of China Governor Pan Gongsheng pointed out that, based on economic and financial performance and the effectiveness of various tools, new policy tools could be created in the future.Some securities research institutions anticipate that the second quarter will be the window period for the implementation of new policy-based financial tools. Liao Bo, co-chief macro analyst at Zhejiang Securities, stated in an interview that since April, external instability and uncertainties have increased. Macro-level fast variables such as public investment may lead to the formation of physical workloads first, but the foundation for sustained recovery and improvement in private sector demand still requires further consolidation. He believes that the new policy-based financial tools will likely continue to be led by three policy and development banks, targeting support for foreign trade, technology innovation, and consumption.
In terms of support direction, the Central Politburo meeting clarified that the new policy-based financial tools will “support technological innovation, expand consumption, and stabilize foreign trade.” Luo Zhiheng, chief economist and head of research at Yuekai Securities, suggests that there may be innovations in the use of funds for these tools, such as supporting basic research and original innovation, or aiding “export to domestic sales. ” In response to U.S. tariff policy pressures since April, Liao Bo expects that policy financial institutions may introduce new tools similar to export buyer’s credit, targeting support for foreign trade enterprises to mitigate the impact of external demand fluctuations. Export buyer’s credit is a medium- to long-term financing facility provided by the exporter’s bank, with government support, to importers or their banks to support the export of capital goods and services such as mechanical and electrical products and complete sets of equipment. Liao pointed out that creating new tools similar to export buyer’s credit would expand importers’ financing channels, providing them with deferred payment facilities and addressing funding shortages. Recently, the National Development and Reform Commission revealed that the new policy-based financial tools will address the issue of insufficient capital for project construction. Some market institutions predict that this year may see the restart and optimization of policy-based development financial tools, which participate in projects through equity investments and other means, supplementing capital for major projects or bridging capital for special bond projects. “Although stimulating consumption is the top policy priority, driving effective investment is also an important means of countercyclical adjustment,” said Zhang Jun, chief economist and head of research at China Galaxy Securities. The investment areas for the new policy-based financial tools may include consumer infrastructure, “two new” and “two heavy” projects. From a policy execution perspective, policy-based financial tools receive support from both the central bank and the Ministry of Finance, relying on three policy and development banks to drive commercial bank credit decisions. With the implementation of the new policy-based financial tools, interviewed experts believe that the central bank may restart and expand PSL to support policy financial institutions; the central government is also expected to provide interest discount support for the new policy-based financial tools.To enhance financial support for effective investment, the central bank previously utilized PSL to assist policy-oriented development financial institutions in establishing financial instruments and providing credit support for key infrastructure sectors. Zhang Jun views the central bank’s announcement of a PSL rate cut on May 7 as a significant policy signal, indicating that PSL is expected to resume expansion and serve as a tool for providing long-term, low-cost funding to policy banks.
In Liao Bo’s perspective, central fiscal interest subsidies are crucial for policy financial tools. In China’s 2015 special construction fund, the central government provided interest subsidies covering 90% of bond rates, substantially alleviating the bond issuance costs for policy financial institutions, reducing project capital costs, and increasing funding demand. He also notes that front-loaded fiscal policy efforts this year imply relatively limited policy space in the second half, necessitating greater coordination with monetary policy, such as using PSL to fund infrastructure projects. Although PSL and fiscal interest subsidies are common supportive measures, Tian Lihui emphasizes that not every new policy financial tool relies on both policies. He believes new policy financial tools can synergize with other policies, such as tax reduction measures, to collectively lower corporate financing costs. Risk Warning and Disclaimer: Market risks exist, and investments require caution. This article does not constitute personal investment advice and does not consider individual users’ specific investment objectives, financial situations, or needs. Users should assess whether any opinions, views, or conclusions herein align with their particular circumstances. Investment decisions based on this content are made at one’s own risk.
