China’s finance ministry, central bank and industry regulators have launched a targeted guarantee plan designed to coax private firms and small businesses back into investment. The two‑year programme allocates 5,000 billion yuan (about $70bn) of guarantee capacity through the national financing guarantee fund (融担基金) system, pairing fee cuts and higher risk‑sharing by the state with requirements that banks retain at least 20% of loan risk.
The scheme channels support to qualified small and micro enterprises (SMEs) seeking medium‑ and long‑term loans for equipment, technology upgrades, digitalisation, factory expansion, and consumption‑driven upgrades in services such as catering, health, childcare and tourism. Single‑borrower guarantee lines will be capped at 20 million yuan (~$2.8m), while the fund’s share of risk for loans rises with tenor: up to 30% for 1–3 year loans, 35% for 3–5 years and 40% for loans over five years.
Beijing has also halved re‑guarantee fees and capped direct guarantee fees at 1%, while raising the fund’s maximum compensation rate on defaults from 4% to 5% and allowing fixed assets created with guaranteed loans to be used as counter‑security. The central government will inject 5 billion yuan into the national guarantee fund and establish a ‘‘national–provincial–city’’ equity and business linkage to steer resources and rewards toward effective local guarantee institutions.
The programme is explicitly pitched as part of a broader drive to revive private investment and expand domestic demand. By reducing the cost of guarantees and absorbing a bigger slice of credit risk, the state aims to remove a key bottleneck to longer‑term lending for private firms, especially those in manufacturing upgrades, green and digital sectors that carry longer payback horizons.
The intervention is sizeable but calibrated: 500 billion yuan is a meaningful, targeted addition to credit support but modest relative to China’s overall financial system and GDP. Its success will depend on banks’ willingness to lend longer maturities, the quality of local guarantee operations, and whether risk buffers are adequate to prevent fiscal backstops turning into contingent liabilities for provincial and municipal budgets.
Risks are twofold. First, moral hazard may rise if banks and local guarantee agencies lean on central subsidises while loosening underwriting standards to hit growth targets. Second, the scheme shifts more contingent exposure onto government‑linked guarantee entities; if defaults spike, provinces and the central fund may face politically painful loss recognition or further fiscal transfers. Officials have sought to mitigate these risks with tighter borrower eligibility rules, performance‑linked rewards for provincial institutions and improved monitoring on a national digital platform.
The policy also signals Beijing’s preference for credit‑channelled, targeted stimulus rather than broad monetary loosening. It complements recent measures such as loan interest subsidies for SMEs and selective re‑lending support while keeping headline LPR settings steady. For international observers and investors, the guarantee plan is a barometer of how far authorities are prepared to use fiscal and quasi‑fiscal instruments to stabilise private investment without re‑igniting a full‑scale, debt‑fuelled stimulus.
Implementation will be crucial. If the plan successfully mobilises bank appetite for medium‑ and long‑term private loans, it could finance upgrades that raise productivity and consumption supply. If not, it risks adding to the opaque stock of contingent liabilities embedded in local government and guarantee‑system balance sheets, complicating China’s medium‑term fiscal and financial reform agenda.