In a significant step towards bolstering technological innovation and modernization, the People's Bank of China (PBOC) has reported substantial progress on its specialized relending facility designed to support sci-tech innovation, technical transformation, and equipment renewal. This announcement comes as the latest update in the PBOC's ongoing efforts to enhance financial support for key sectors.

In June, the PBOC disclosed that nearly 7,000 firms have been identified as the first batch of eligible candidates for the relending facility. These firms have been recommended to 21 participating banks, which include major policy banks, state-owned commercial banks, the China Postal Savings Bank, and several joint-stock commercial banks. This selection underscores the central bank's commitment to directing financial resources toward sectors pivotal for China's future economic growth.

The relending facility, initially established in April with a fund allocation of 500 billion yuan (approximately 70.47 billion U.S. dollars), aims to provide targeted financial support to small and medium-sized enterprises (SMEs) engaged in sci-tech innovation. Of the total fund, 100 billion yuan has been specifically earmarked to offer first-time loans to sci-tech-oriented SMEs that are in their early development or growth stages. The facility carries a favorable interest rate of 1.75% per annum, with provisions for two one-year extensions, thereby offering sustained financial assistance over a potentially three-year period.

The implementation of this facility marks a strategic enhancement of previous policies. It integrates and refines the existing frameworks of the tech innovation relending and equipment renewal relending programs. By building on the successful elements of these earlier initiatives, the new facility aims to address the evolving needs of enterprises engaged in technological advancement and modernization.

A key feature of this facility is its alignment with the central bank's broader goal to promote digitization, smart technologies, advanced manufacturing, and green development within China's industrial sectors. The selected financial institutions are encouraged to independently evaluate and approve loans based on the risk profiles and potential of the applicant firms. This approach is intended to ensure that financial resources are allocated efficiently and effectively, fostering an environment conducive to innovation and sustainable growth.

The relending facility's operational mechanism involves a stringent selection process where financial institutions review applications from enterprises. These applications are cross-referenced with industry recommendations and project lists provided by relevant authorities. Loans that meet the specified criteria are eligible for relending from the PBOC, which will cover up to 60% of the loan principal, thereby mitigating the risk for lending banks and promoting greater financial inclusion for innovative enterprises.

This initiative reflects China's strategic focus on leveraging financial policy tools to stimulate technological progress and industrial upgrading. By facilitating access to affordable financing for pioneering SMEs, the PBOC aims to cultivate a robust ecosystem that supports the development and deployment of cutting-edge technologies across various sectors.