China's finance ministry and three other central agencies have rolled out a stepped-up fiscal subsidy to encourage firms to replace and modernize equipment. Central government will top up banks' fixed-asset loans for equipment renewal by 1.5 percentage points on loan principal, with the subsidy paid from the loan disbursement date and capped at two years.
The measure broadens both scope and sectoral reach. In addition to traditional areas such as industry, power and transport, the policy explicitly extends support to construction and municipal works, energy-using equipment, aircraft parts, electronic information, safety production equipment, facility agriculture, fishing vessels, cold chains, grain and oil processing, waste recycling, small hydropower, consumer retail facilities, artificial intelligence and eldercare — signaling a clear tilt toward high-end, green, digital and intelligent upgrades.
Implementation details aim to speed cash flows to borrowers. The policy names 26 state and commercial banks as handling institutions and replaces slow ex-post auditing with a "pre-allocation plus settlement" mechanism: provincial bank branches must apply to provincial finance departments for 2026 needs by January 31, and provincial authorities will pre-allocate funds within 10 working days. Audit responsibilities are concentrated at provincial levels and the Finance Ministry has removed routine oversight of individual subsidy payments by its local supervisory bureaus.
The notice also folds in certain central re-lending supported technology-innovation loans newly issued by banks from 2026 into the subsidy umbrella, and sets the policy to run through December 31, 2026, with a possible extension depending on conditions. Settlement and clearing timetables are prescribed: annual settlement steps beginning in 2027 and a final clearing stage expected by January 31, 2029, unless the policy period is extended.
Stronger compliance and monitoring measures accompany the concessions. Banks are required to monitor loan use, prevent financial arbitrage and duplicate subsidy claims, and must notify borrowers when interest subsidies are credited. Authorities warn of clawbacks where serious misuse is found and reserve the right to disqualify banks that collude with clients to obtain subsidies fraudulently.
For companies and domestic equipment makers the policy reduces near-term financing costs and lowers the hurdle for capital spending on upgrades. For policymakers the instrument is a tool to accelerate technology adoption, strengthen industrial chains and lift demand without broad-based interest rate cuts. For banks, it shifts administrative burdens and compliance requirements while offering a clear pipeline of subsidized business handled through designated branches.
There are immediate operational frictions to watch. The pre-allocation process places pressure on provincial finance departments to estimate needs accurately, raising the risk of under- or over-allocation. Local fiscal capacity and uneven administrative capacity across provinces could skew benefits toward regions with stronger coordination between banks and local governments.
Ultimately, the package should be read as Beijing’s pragmatic attempt to nudge private and small businesses into higher-value investment amid a slowing macro backdrop and external pressure on critical technology supply chains. It lowers borrowing costs for a defined window, prioritizes equipment that advances the government’s industrial and green ambitions, and tightens supervisory guardrails — a calibrated mix of stimulus, industrial policy and risk control.