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China’s $69 Billion Bet May Change Global Tech Landscape

Last Updated April 8, 2024 11:01 AM
Giuseppe Ciccomascolo
Last Updated April 8, 2024 11:01 AM

Key Takeaways

  • The People’s Bank of China (PBOC) is investing heavily to boost innovation and technological advancement.
  • This program aims to support small and medium-sized tech firms with easier access to credit and lower interest rates.
  • Meanwhile, India’s surging economy indicates its potential to become the world’s leading contributor to economic growth.

In a proactive move to bolster innovation and facilitate project enhancements within the science and technology sectors, the People’s Bank of China (PBOC) has announced  its intention to establish a re-lending program. This initiative will allocate up to 500 billion yuan (equivalent to approximately $69 billion) towards fostering growth and advancement in key areas of scientific and technological development.

With this substantial financial commitment, the PBOC  aims to catalyze groundbreaking research endeavors, foster technological breakthroughs, and fuel transformative projects.

The Central Bank’s Plan

According to a statement  released on the People’s Bank of China’s website, loans under the program will carry an attractive interest rate of 1.75% and will span a one-year tenor, with the flexibility of being extended twice for an additional year each time. The allocated loan quota will be distributed among 21 banks.

This refinancing initiative is specifically tailored to provide crucial support to small- and medium-sized technology firms during their nascent startup phases and subsequent growth trajectories. Additionally, it aims to furnish essential credit backing to high-end projects, thereby fostering innovation and competitiveness within the sector.

The unveiling of this new lending program aligns closely with the strategic vision outlined by PBOC Governor Pan Gongsheng in March. It also comes on the heels of indications from China’s top economic authorities regarding potential measures to enhance liquidity.

Despite persistent challenges, including a lingering property crisis and subdued consumer sentiment, policymakers are keen to shore up confidence in the resilience and vibrancy of the world’s second-largest economy, safeguarding against potential dampening effects on the growth trajectory.

Who’s Going To Benefit?

The fund aims to enhance China’s leadership in technology and science  by supporting companies in these sectors. Instead of directly funding these enterprises, the central bank plans to inject liquidity into banks. Then, the latter will allocate funds to deserving projects.

Local banks will identify and address emerging financing needs, particularly for micro, small, and medium-sized businesses and self-employed entrepreneurs. This initiative aims to promote inclusive lending characterized by enhanced accessibility, lower interest rates, and broader coverage, thereby bolstering business stability, preserving employment, and contributing to overall macroeconomic stability.

Deputy Governor Xuan Changneng of the People’s Bank of China suggested  in March that there’s room to reduce the reserve requirement ratio for banks, a key liquidity management tool for banks. He also noted the potential for more autonomy in interest rate policy. Xuan cited declining deposit rates globally and easing measures in major economies. These remarks acknowledge challenges posed by narrow bank profit margins and the Federal Reserve’s sustained high-interest rates.

India Is Breathing Down China’s Neck

China’s economic slowdown prompts Western governments to view it more as a rival than an ally. China is still the second-largest economy in the World, but investments like this highlight the fact that its slow growth will erode its position and help other countries take over part of its strength. One of these is India.

India’s economy is surging with a booming stock market, increased foreign investment, and new trade agreements. Major players like Boeing and Apple are expanding operations, and suppliers are shifting focus from China to India. Despite this, India’s $3.5 trillion economy is dwarfed by China‘s $17.8 trillion economy, posing challenges like inadequate infrastructure and a shortage of skilled labor.

Future scenarios for Indian economy
Future scenarios for Indian economy. l Source: Bloomberg News

India has the potential to become the world’s leading contributor to economic growth, especially under Prime Minister Modi’s leadership. Forecasts  suggest India could become the world’s no.1 contributor to GDP growth as early as 2028.

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