China Pledges Over 1 Trillion Yuan in Cheap Credit, Cuts Rates on Targeted Lending Tools

China’s central bank has cut interest rates on a broad range of targeted lending tools and pledged more than a trillion yuan in new, cheap credit for technology companies and private firms, stepping up efforts to support a slowing economy without lowering its main policy rates.

Structural tools get cheaper, benchmarks unchanged

The People’s Bank of China (PBOC) said on Jan. 15 it will reduce interest rates on all of its “structural” monetary policy tools by 0.25 percentage point, effective Jan. 19. The move covers re-lending facilities, rediscount operations and pledged supplementary lending, but leaves the benchmark one-year Medium-term Lending Facility (MLF) rate and the market-based loan prime rate unchanged.

At the same time, the central bank will expand targeted lending quotas, adding 400 billion yuan to a re-lending program for technology innovation and equipment upgrades and boosting support for agriculture and small businesses by 500 billion yuan. Within that, it will carve out a separate 1 trillion yuan re-lending line for private enterprises, with an explicit focus on small and medium-sized private firms.

The package underscores how Beijing is leaning more heavily on directed credit to sustain growth as it grapples with weak domestic demand, a drawn-out property slump and fragile confidence among entrepreneurs, while trying to avoid a broad easing of policy rates that could put renewed pressure on the yuan and squeeze bank profits.

Officials signal room for more easing

At a State Council Information Office briefing, PBOC Deputy Governor Zou Lan said the decision was aimed at “major strategic areas and weak links” in the economy, naming technology innovation, green development, inclusive finance, agriculture and small businesses among the priorities.

Zou also signaled that officials still see room for more conventional easing if needed.

“From this year’s perspective, there is still space for cuts in the reserve requirement ratio and interest rates,” he said, adding that the central bank would keep the yuan “basically stable at a reasonable and balanced level.”

New rates for structural facilities

Under the changes taking effect next week:

• Agriculture and small-business re-lending will fall to 0.95% for three-month funds, 1.15% for six months and 1.25% for one year.
• The rediscount rate will drop to 1.5%.
• The rate on pledged supplementary lending will be set at 1.75%.
• Special structural tools will also carry a 1.25% rate.

Those rates sit well below the main policy benchmarks. The one-year MLF, which effectively anchors the loan prime rate (LPR), was last left unchanged, and commercial banks’ one-year LPR stands at 3% with the five-year at 3.5%—both record lows but steady for seven consecutive months.

By cutting the cost of structural tools instead, the central bank is attempting to channel cheaper funding into sectors it wants to promote, without triggering a broad repricing of loans across the banking system.

Why Beijing is leaning on directed credit

The measures come after a year of subdued credit demand. New bank lending totaled 16.27 trillion yuan in 2025, the smallest annual tally since 2018 and down from 18.09 trillion yuan in 2024, as households and companies stayed cautious amid uncertain income prospects and prolonged housing market weakness. Economists surveyed by major news outlets expect growth to slow from around 4.9% in 2025 to about 4.5% this year.

The strains are most visible in real estate. Large developers have been working through debt restructurings, new home sales have slumped and construction starts have fallen sharply. In a separate step announced alongside the monetary changes, authorities lowered the minimum down payment for commercial property mortgages to 30% in an effort to help clear excess inventory of offices and retail space.

Technology and private firms in focus

The new package builds on a web of structural tools that the PBOC has expanded since the pandemic. These include re-lending lines for agriculture, inclusive finance, green projects and elderly care, as well as carbon-reduction facilities. Central bank data have previously put outstanding balances on such instruments in the low trillions of yuan, making them a sizable but still limited portion of overall credit.

The technology innovation and equipment renewal re-lending facility, launched in 2024, has been one of the fastest growing. It started with a quota of 500 billion yuan, was expanded to 800 billion yuan last year and will now rise again to 1.2 trillion yuan. The tool provides low-cost funds to banks that extend qualified loans to technology-oriented firms and companies upgrading machinery and production lines.

The newly designated 1 trillion yuan private-enterprise re-lending line is even more notable in political terms. It is being assembled by reallocating 500 billion yuan from existing agriculture and small-business quotas and adding another 500 billion yuan, and will explicitly cover small and medium-sized private firms rather than just micro enterprises.

For years, private business owners have complained that banks favor state-owned companies when it comes to lending, despite repeated official pledges of “equal treatment.” The central bank and other agencies have rolled out various inclusive finance schemes, but private investment has lagged as regulatory crackdowns on internet platforms, private tutoring and other sectors dented confidence.

By branding a large facility specifically for private firms, policymakers are sending a fresh signal that they want to reverse that slide. Whether banks will respond by lending more aggressively is less clear. Many lenders remain cautious about credit risk, especially when profitability is under pressure and the economic outlook is uncertain.

Yuan sensitivity and market implications

On foreign exchange, the central bank’s decision to leave the main policy rates unchanged reflects its continued sensitivity to the currency. The yuan softened immediately after the Jan. 15 announcement before recovering part of its losses in onshore trading. While the U.S. Federal Reserve has already begun to cut interest rates—narrowing the interest-rate gap that weighed on the yuan in previous years—Chinese officials have repeatedly ruled out using a weaker currency as a tool to boost exports.

The central bank also highlighted its readiness to “flexibly” use open market operations and purchases and sales of government bonds to keep liquidity ample and yields stable, as Beijing leans on fiscal stimulus funded by heavy bond issuance to support infrastructure and other public spending.

A shift in the monetary playbook

Analysts say the focus on structural tools underlines a broader shift in China’s monetary playbook. Instead of relying on across-the-board cuts that lower borrowing costs for all—including property developers and local government financing vehicles—the PBOC is trying to steer money toward what the leadership calls “high-quality development.”

That approach may help limit the buildup of systemic risks that followed earlier credit booms. At the same time, it places more weight on bureaucratic judgments about which sectors deserve cheap funding and increases the importance of how local banks and governments implement central directives.

For now, the package announced this week suggests Beijing is trying to buy time. By reducing funding costs for lenders that tap structural facilities, the central bank can modestly ease financial conditions, give banks some cushion on their margins and lay the groundwork for possible future cuts to benchmark rates, all while signaling support for the private sector and its long-term technology ambitions.

How much that will matter in an economy where many companies are more concerned about demand than the price of credit remains an open question—one that will shape not only China’s growth path but also how investors at home and abroad view the country’s policy resolve in the year ahead.