context: Revelations that financial authorities are seeking to expand bond financing for innovative tech companies may be significant. For years Beijing has been focused on using equities to better financing tech companies, either by increasing state funding for the venture capital that backs them or going through multiple rounds of stock market reforms. Turning to bonds may be the centre realising that PRC bond markets are healthier, making them a more effective tool for financing scitech self-reliance.
Pan Gongsheng 潘功胜 PBoC (People’s Bank of China) governor answered questions about 2025’s monetary policy direction during the Two Sessions. Regulators and the central bank will introduce a ‘technology board’ within the bond market, offering a dedicated space to raise capital, providing a more efficient, accessible and low-cost financing option tailored to the needs of the technology sector.
The technology board will serve three primary types of issuers
- financial institutions such as commercial banks and securities companies will be allowed to issue technology innovation bonds to expand funding sources for
- tech loans
- bond investments
- equity investments
- growth and mature-stage technology companies will be able to issue medium- to long-term bonds to support
- R&D
- project construction
- mergers and acquisitions within the tech sector
- experienced private equity and venture capital institutions will be able to issue long-term technology innovation bonds to fund
- early-stage investments
- smaller tech companies
- hard-tech ventures like advanced manufacturing and clean energy technologies
Pan emphasised the development of innovative mechanisms to reduce the risks associated with tech company bonds. These mechanisms include risk-sharing strategies, which spread financial risks across different stakeholders, thereby lowering the overall cost of capital.
PBoC will cut interest rates and reserve ratios at the appropriate time according to changes in the domestic and international situation, added Pan, assuring a looser monetary policy in 2025. He noted progress in controlling debt risks, including
- reducing LGFV(local government financing vehicle) debt by 25 percent between the beginning of 2023 and the end of 2024
- unwound or restructured 40 percent of LGFVs during that period
- policy rate cuts leading to C¥1.5 tn less in mortgage payments per year