China’s finance ministry has unveiled a targeted interest-subsidy scheme designed to coax private small and micro enterprises into expanding fixed-asset investment across a clutch of strategic industrial chains. From January 1, 2026, qualifying loans issued by approved banks will receive a central-government subsidy of 1.5 percentage points per year for up to two years, with a per-loan ceiling of RMB 50 million and an initial policy window of one year.
The scheme specifies eligible sectors tightly: new-energy vehicles, core automotive components, industrial machine tools, medical and pharmaceutical manufacturing, medical devices and equipment, basic and industrial software, civil aircraft, servers, mobile communications hardware, new-display technologies, instruments and meters, industrial robots, rail transit equipment, shipbuilding and marine engineering, and agricultural machinery. Production-oriented services such as tech, logistics, information and software services, energy-efficiency and environmental services, and production leasing are also included, as are agri-processing and emerging fields exemplified by artificial intelligence.
Implementation is routed through a defined roster of 21 national and high-performing regional banks, plus qualified provincial and foreign banks. The document sets out a “head-to-head” coordination arrangement between central and provincial finance departments and bank headquarters to speed pre-allocation, auditing, settlement and clearing. Banks must apply for pre-allocated subsidy quotas in early 2026 and report monthly loan issuance; full settlement of 2026 use is scheduled for early 2027, with final clearing by 2029 under the current timetable.
The measure is a calibrated fiscal intervention to shore up private-sector investment without broad-based monetary easing. Beijing faces weak private capex and a slowing growth backdrop, and this policy aims to channel state funds directly into productive investments and strategic supply chains where China seeks technological self-reliance. By subsidising a portion of borrowing costs, the central government hopes to lower the effective financing burden and make longer-term, equipment-heavy projects financially viable for small firms.
Execution risks remain significant. The one-year initial window and a two-year maximum subsidy tenor could limit firms’ willingness to undertake long payback projects. Provincial administrative capacity and the timeliness of pre-allocated funds will determine whether cash flows actually reach borrowers on schedule. Regulators have flagged strict audit and anti-abuse provisions — duplicate subsidies are barred and serious misuse can trigger clawbacks and sanctions — but practical enforcement across hundreds of localities will be the acid test.
For markets, the policy tilts in favour of domestic capital-goods and equipment suppliers and firms in the named sectors, potentially supporting demand for machinery, robotics and industrial software. It also signals Beijing’s industrial priorities for investors and global competitors alike: expect sustained state encouragement for technologies seen as central to supply-chain resilience. Whether the policy materially lifts private investment will depend on banks’ appetite to lend, the speed of provincial implementation and whether the subsidy is extended beyond the initial pilot period.