Abstract

On the morning of September 24th, the People's Bank of China, the Financial Regulatory General Administration, and the China Securities Regulatory Commission jointly introduced a comprehensive set of financial policies. The capital market responded strongly, with the Shanghai Composite Index and the ChiNext Index closing up by 4.15% and 5.54% respectively on the same day. The price of rebar futures rose by 3.21%, the yield on 10-year government bonds increased, and the Chinese yuan strengthened against the US dollar, reflecting a significant boost in market expectations and confidence, and a positive outlook for China's economic prospects.

Specifically, the comprehensive financial policy mainly includes three major areas:

First, the reduction of reserve requirements and interest rates, with a 0.5 percentage point decrease in the reserve requirement ratio and a 0.2 percentage point decrease in the 7-day reverse repo operation interest rate. On one hand, there is currently insufficient effective demand domestically, with prices remaining low and real interest rates high, necessitating further regulatory efforts from supportive monetary policy. On the other hand, there is relatively ample room for monetary policy, the Federal Reserve's rate cut has eased external constraints, and the net interest margin of banks can be maintained stable through measures such as reducing reserve requirements and guiding the downward movement of deposit interest rates.

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Second, stable real estate policies, including reducing the interest rates on existing mortgages, accelerating the destock of real estate, and alleviating the liquidity pressure on real estate companies. (1) Reducing the interest rates on existing mortgages to near the level of newly issued loans, with an expected average reduction of about 0.5 percentage points, which will help to reduce the interest burden on residents, decrease the phenomenon of early mortgage repayments, and enhance the consumption capacity of residents. (2) Stimulating real estate demand and accelerating the stabilization and recovery of the real estate market: first, by reducing reserve requirements and interest rates to guide the decline in mortgage interest rates, with an expected reduction of 0.2 to 0.25 percentage points; second, by lowering the minimum down payment ratio for second homes to 15% to support the demand for improved housing; third, by increasing the central bank's contribution ratio in the policy of re-lending for affordable housing from 60% to 100%, enhancing the market-oriented incentives for banks and acquisition entities, and further supporting local governments in storing existing housing. (3) Supporting the financing of real estate companies and alleviating their debt and liquidity pressures: first, by extending the phased policies such as the extension of existing financing for real estate companies and loans for operational properties to the end of 2026; second, by supporting the acquisition of existing land by real estate companies to revitalize their existing assets.

Third, stable stock market policies. (1) At the central bank level, two brand-new monetary policy tools supporting the capital market have been created. The first is the "Securities Fund Insurance Company Swap Facility," which is similar to the central bank's bill swap, adopting a "swap for swap" mechanism, allowing non-bank institutions to use low-liquidity assets as collateral to exchange for high-liquidity central bank assets (government bonds, central bank bills), with an initial quota of 500 billion. Through this tool, the existing assets of securities and fund companies can be revitalized, encouraging them to actively participate in the market, enliven the market, and stabilize the market, while avoiding non-bank institutions "cashing out and leaving" due to liquidity issues. The second is the "Special Re-lending" supporting stock buybacks and increases, which, like the special re-lending for equipment updates and transformations, adopts a "lend first, then borrow" approach, with commercial banks first issuing preferential interest rate loans to listed companies, and then obtaining re-lending funds from the central bank, with an initial quota of 300 billion. The "Special Re-lending" aims to guide commercial banks to lend to listed companies or major shareholders for stock buybacks and increases through incentive compatibility mechanisms. Compared with the central bank directly "entering the market" to buy and sell stocks, it follows a market-oriented process and does not generate moral hazard, price distortion, and other issues. (2) At the CSRC level, further support for long-term capital entering the market and encouragement of mergers and acquisitions are proposed. The "Guiding Opinions on Promoting Long-Term Capital into the Market" and the "Opinions on Deepening the Reform of the Mergers and Acquisitions Market of Listed Companies" will be issued to improve institutional design. Specific measures include enriching fund products and reducing fund fees. (3) At the Financial Regulatory General Administration level, financial asset investment companies have become a "new handle" for the banking system to support venture investment, which will enhance support by expanding the pilot scope, relaxing investment restrictions, and optimizing assessments.

It is worth noting that regulatory authorities have strengthened the guidance of future policy expectations and implemented the "improvement of the expectation management mechanism" proposed at the third plenary session of the 20th Central Committee. For example, the central bank clearly stated: "Within this year, depending on the condition of market liquidity, we may further reduce the reserve requirement ratio by 0.25-0.5 percentage points at an appropriate time" "Next, we are considering guiding commercial banks to improve the pricing mechanism of mortgage loans, allowing banks and customers to dynamically adjust based on market-oriented principles through autonomous consultation" "We plan the initial operation scale of the swap facility to be 500 billion yuan, and the scale can be expanded in the future depending on the situation. As long as this matter is well done, the first phase of 500 billion yuan, we can also have another 500 billion yuan, and even a third 500 billion yuan, I think it is all possible, it is open" and so on.

Risk Warning: External shocks exceed expectations, and the policy transmission effect is less than expected.

Table of Contents

I. Stabilizing Growth: Reducing the reserve requirement ratio by 0.5 percentage points, and the interest rate by 0.2 percentage points.(I) Lowering reserve requirements and interest rates is an inevitable requirement for stable growth.

(II) There is relatively ample room for monetary policy, and the Federal Reserve's rate cuts alleviate external constraints.

II. Stabilizing the real estate market: Reducing the interest rates on existing mortgages, accelerating the de-stocking of real estate, and alleviating the liquidity pressure on real estate companies.

(I) Reducing the interest rates on existing mortgages: To reduce the interest burden on residents, decrease the phenomenon of early repayment of loans, and enhance the consumption capacity of residents.

(II) Accelerating the de-stocking of real estate: Lowering mortgage interest rates and reducing the minimum down payment ratio for second homes, further supporting local governments in the collection and storage of existing houses.

(III) Alleviating the liquidity pressure on real estate companies: Extending the term of the "Financial 16 Articles" and commercial property loan policies, supporting the acquisition of existing land by real estate companies.

III. Stabilizing the stock market: Creating monetary policy tools to support the capital market, supporting long-term capital entering the market, and encouraging the banking system to support venture investment.

(I) The Central Bank: Creating two major monetary policy tools to support the capital market.

(II) The China Securities Regulatory Commission: Encouraging long-term capital to enter the market and mergers and acquisitions, two "Opinions" will be issued.

(III) The Financial Regulatory General Administration: Promoting the better support of venture investment by financial asset investment companies under state-owned large banks.**Translation:**

**I. Steady Growth: RRR Cut by 0.5 Percentage Points, Interest Rates Reduced by 0.2 Percentage Points**

On September 24th, the central bank decided to lower the reserve requirement ratio (RRR) by 0.5 percentage points, providing approximately 1 trillion yuan in long-term liquidity to the financial market; the interest rate for the 7-day reverse repurchase operation was reduced by 0.2 percentage points, adjusted from 1.7% to 1.5%.

(1) The reduction of RRR and interest rates is an inevitable requirement for steady growth.

The main contradiction in the current economy is the imbalance between supply and demand caused by insufficient domestic effective demand, which leads to a divergence between the actual and nominal economic growth rates, as well as between macroeconomic data and microeconomic perceptions. This divergence has had a certain impact on effectively boosting expectations and confidence, as well as consumption and investment.

Looking at the economic data from July to August, the GDP growth rate for the third quarter may be lower than the 4.7% of the second quarter, affecting the achievement of the "around 5%" annual economic growth target. Although the effects of policies such as large-scale equipment updates and consumer goods exchange, relaxation of real estate regulation, accelerated issuance and use of government bonds have been somewhat evident, consumer spending, corporate investment, local infrastructure investment, and the real estate market have not yet effectively stabilized and require stronger policy support.

The real interest rate remains high, and supportive monetary policy needs to further increase regulatory efforts. In the second quarter of 2024, the weighted average interest rate for RMB loans from financial institutions was 3.7%, a new low since 2008; however, due to the persistently low price level, the real interest rate, after subtracting the GDP deflator, is 4.4%, still at a historical high, which suppresses consumer spending and corporate investment. This indicates that monetary policy should further exert its strength, lowering the RRR and interest rates as necessary to stimulate consumer spending and corporate investment demand.

(2) There is relatively ample room for monetary policy, and the Federal Reserve's interest rate cut alleviates external constraints.

The current weighted average reserve requirement ratio for financial institutions is 7%. After the implementation of the RRR reduction policy, the average reserve requirement ratio for the banking industry is approximately 6.6%. Compared with the central banks of major economies internationally, there is still room for adjustment. The central bank stated that depending on the condition of market liquidity within this year, it may further reduce the reserve requirement ratio by 0.25-0.5 percentage points at an appropriate time.After the interest rate cut, commercial banks can still maintain the stability of their net interest margins. On the one hand, the reserve requirement ratio (RRR) cut can provide commercial banks with low-cost long-term funds; on the other hand, a symmetric interest rate cut will also reduce the liability costs of commercial banks. The Medium-term Lending Facility (MLF) and open market operations are the main channels for commercial banks to borrow medium and short-term funds from the central bank. The decline in policy interest rates will reduce the cost of bank funds; through the interest rate self-regulation mechanism, deposit rates will also be adjusted accordingly, thereby maintaining the stability of the bank's net interest margin. It is expected that after this adjustment of policy interest rates, it will lead to a reduction of about 0.3 percentage points in the MLF rate, and it is expected that the Loan Prime Rate (LPR), deposit rates, etc., will also decrease by 0.2 to 0.25 percentage points.

In September, the Federal Reserve started the interest rate cut cycle, and the yield on U.S. Treasury bonds and the U.S. Dollar Index tend to move downward, reducing the pressure on the Renminbi exchange rate, thereby alleviating the constraints on China's RRR cuts and interest rate cuts.

II. Stabilize the real estate market: Reduce the interest rates on existing mortgages, accelerate the de-stocking of real estate, and alleviate the liquidity pressure of real estate companies.

The continuous downturn in the real estate market is an important drag on the current economic recovery. From January to August, the total sales of commercial housing and real estate investment decreased by 23.6% and 10.2% year-on-year, respectively; in August, the prices of new and second-hand houses in 70 large and medium-sized cities decreased by 5.7% and 8.6% year-on-year, respectively. In addition, issues such as residents repaying loans in advance, tight liquidity of real estate companies, and reduced land transfer income of local governments are also not conducive to economic and financial stability.

(1) Reduce the interest rates on existing mortgages: Reduce the interest burden on residents, reduce the phenomenon of repaying loans in advance, and enhance the consumption capacity of residents.

There are two major differences between this reduction of existing mortgage interest rates and the first adjustment in August last year: First, the scope of benefits is broader. Last August, it was only for the first set of mortgages, while this time it includes all existing mortgages; second, the interest rate cut is done in one step. Last August, it was required that the interest rate level of newly issued loans should not be lower than the lower limit of the mortgage interest rate when the original loan was issued, which may still need to bear a higher addition margin. This time, it is directly reduced to the vicinity of the newly issued loan interest rate.

It is expected that the average decline in the interest rates on existing mortgages will be around 0.5 percentage points. Mortgage interest rates include two parts: LPR and additional points. The adjustment of existing mortgage interest rates mainly targets the additional points. At the end of 2023, the weighted average interest rate on existing mortgages was 4.27%. Considering that from January 2023 to September 2024, the 5-year LPR has decreased by 0.45 percentage points, the current implied average interest rate on existing mortgages should be around 3.82%. In the second quarter of 2024, the weighted average interest rate on personal housing loans was 3.45%, and the 5-year LPR decreased by 0.1 percentage points in July, so the current average interest rate on newly issued loans is around 3.35%. Compared with the 3.82% interest rate on existing mortgages and the 3.35% interest rate on newly issued loans, the adjustment space is about 0.5 percentage points.

Reducing the interest rates on existing mortgages helps to reduce the interest burden on residents, reduce the phenomenon of repaying loans in advance, and enhance the consumption capacity of residents. It is expected that the policy will benefit 50 million households and 150 million people, with an average annual reduction in total interest expenses for households of about 150 billion yuan, which will help increase residents' disposable income and stimulate residents' consumption; after the interest rates on existing mortgages are reduced, the interest rate spread between existing mortgages and newly issued mortgage interest rates and financial management yields will be significantly narrowed, which will help weaken the residents' motivation to repay loans in advance, suppress the behavior of illegally replacing existing mortgages, stabilize the scale of bank mortgage loans, and reduce financial risks.

The adjustment of existing mortgage interest rates may be further institutionalized and dynamic. The central bank pointed out: "Next, we are also considering guiding commercial banks to improve the pricing mechanism of mortgage loans, and the banks and customers will autonomously negotiate and dynamically adjust based on market-oriented principles." After the establishment and improvement of the system, the adjustment of existing mortgage interest rates in the future may no longer need to wait for the introduction of special policies, but will change in a timely manner with the newly issued mortgage interest rates.

(2) Accelerate the de-stocking of real estate: Reduce mortgage interest rates, reduce the minimum down payment ratio for the second house, and further support local governments in storing existing houses.The central bank has accelerated the stabilization and recovery of the real estate market through three measures, essentially implementing all necessary policies.

Firstly, by reducing reserves and interest rates, it has guided the decline in mortgage interest rates. After the new real estate policy on May 17th, the central bank canceled the national policy limits for the first and second mortgage interest rates. Therefore, the central bank's adjustment of mortgage interest rates will mainly be through monetary policy tools such as reserve reduction and interest rate cuts, guiding the LPR (Loan Prime Rate) to decrease, which will then be transmitted to mortgage interest rates. The central bank's interest rate cut of 0.2 percentage points is expected to lead to a decline in the LPR by 0.2 to 0.25 percentage points, with mortgage interest rates also being reduced by the same margin, reducing the cost of home purchases for residents and stimulating their demand for housing.

Secondly, by lowering the minimum down payment ratio for second homes and supporting the demand for improved housing. After the new real estate policy on May 17th, the down payment ratios for first and second homes were respectively adjusted to 15% and 25%. The current policy no longer distinguishes between first and second homes, with the minimum down payment ratio unified at 15%. The reduction in the minimum down payment ratio for second homes helps to lower the threshold for residents' improved housing demand and invigorate the real estate market.

Thirdly, by increasing the central bank's contribution ratio in the policy of re-lending for affordable housing, further supporting local governments to store existing housing. After the new real estate policy on May 17th, the central bank established a 300 billion yuan re-lending for affordable housing, guiding financial institutions to support state-owned enterprises to purchase unsold commercial housing at reasonable prices according to market-oriented and rule-of-law principles, for use as allocated sale or rental affordable housing. However, the policy effect was relatively limited, with only 12.1 billion yuan of affordable housing re-lending used by the end of June. To further enhance the market-oriented incentives for banks and purchasing entities, the central bank increased its contribution ratio in the affordable housing re-lending from the original 60% to 100%, accelerating the process of de-stocking commercial housing.

(III) Alleviating the liquidity pressure of real estate companies: Extending the policy term of "Financial 16 Articles" and commercial property loans to support the acquisition of real estate companies' existing land.

At present, the debt and liquidity risks of real estate companies still exist, affecting residents' confidence in purchasing homes, the ability of real estate companies to acquire land and build houses, and the safety of bank loans. The central bank and the Financial Regulatory Authority actively support reasonable financing for real estate companies and prevent and resolve real estate risks.

Firstly, by extending the policy term of "Financial 16 Articles" and commercial property loans to alleviate the debt maturity pressure of real estate companies. In the "Financial 16 Articles", for the existing financing of real estate companies such as development loans and trust loans, financial institutions are allowed to support through existing loan extensions and repayment arrangements; commercial banks' supporting financing for projects supported by special loans will not be downgraded in risk classification during the loan term, and the borrowing entities after the new and old debt division will be managed according to qualified borrowing entities. In the new regulations for commercial property loans, commercial banks are allowed to issue commercial property loans to real estate development companies with standardized operations and good development prospects to repay the company and its group holding company (including consolidated subsidiaries) existing real estate-related loans and public market bonds. The above policies will expire at the end of 2024, and the central bank and the Financial Regulatory Authority have decided to extend the phased policies such as the extension of existing financing for real estate companies and commercial property loans until the end of 2026, which is conducive to promoting the stable and healthy development of the real estate market and resolving real estate market risks.

Secondly, by supporting the acquisition of existing land by real estate companies and revitalizing the existing assets of real estate companies. The central bank proposed that on the basis of using some local government special bonds for land reserve, it is studied to allow policy banks and commercial banks to loan support for qualified enterprises to acquire real estate company land in a market-oriented manner, revitalize existing land, and alleviate the financial pressure of real estate companies. When necessary, the central bank can also provide re-lending support, and this policy is still being studied by the central bank and the Financial Regulatory Authority.

III. Stabilizing the stock market: Creating monetary policy tools to support the capital market, supporting long-term capital entering the market, and encouraging the banking system to support venture investment.

Since the beginning of this year, due to reasons such as the unstable foundation of economic recovery, insufficient effective demand, and weak confidence of micro-entities, the performance of the A-share market has been relatively weak, with all major broad-based indices closing lower. As of September 23, the Shanghai Composite Index fell by 7.6%, and the CSI 300 fell by 6.4%. At present, there are signs that pessimistic expectations are continuously fermenting and reinforcing in the capital market, and may constrain residents' consumption and corporate investment through channels such as the wealth effect, having a negative impact on the real economy. Therefore, it is crucial to boost the stock market and stabilize confidence.It can be observed that nurturing the stock market and providing liquidity are significant highlights of this press conference. Both the central bank and the China Securities Regulatory Commission (CSRC), as well as the General Administration of Financial Regulation, have introduced substantial measures to support the healthy development of the capital market from their respective areas of responsibility.

(I) Central Bank: Creation of Two Monetary Policy Tools to Support the Capital Market

1. Establishment of a swap facility for securities, funds, and insurance companies to ensure relatively abundant liquidity for non-bank institutions.

Firstly, the mechanism of the "swap facility" operates on the principle of "exchanging securities for securities." According to Governor Pan Gongsheng's speech, securities, funds, and insurance companies can use eligible bonds (credit bonds), stock ETFs, and constituents of the CSI 300 as collateral to exchange for the central bank's government bonds and central bank bills, thereby obtaining liquidity support. That is, non-bank institutions use low-liquidity assets as collateral in exchange for the central bank's high-liquidity assets.

Secondly, both overseas experience and domestic practice have tools similar to the "swap facility." The Federal Reserve introduced the Term Securities Lending Facility (TSLF) during the 2008 financial crisis, allowing primary dealers to use less liquid securities as collateral to borrow more liquid U.S. Treasury securities from the Federal Reserve, facilitating market financing and boosting the market. This tool was also reactivated during the 2020 pandemic.

A similar tool in China is the Central Bank Bills Swap (CBS) introduced in 2019, which allows primary dealers to exchange perpetual bonds from banks for central bank bills from the central bank. This tool has increased the market liquidity of perpetual bonds, enhancing the market's willingness to subscribe to perpetual bonds (holding perpetual bonds is equivalent to holding central bank bonds), thereby supporting banks in issuing perpetual bonds to replenish capital and creating favorable conditions for increasing financial support for the real economy.

Thirdly, the "swap facility" does not involve the issuance of base money. The "swap facility" is not a "lending facility," and the central bank does not directly provide funds to non-bank institutions, hence it does not issue base money. At the same time, China's "People's Bank Law" explicitly stipulates that the central bank shall not provide loans to non-bank financial institutions (except for institutions designated by the State Council).

Fourthly, the government bonds and central bank bills that non-bank institutions exchange for through the "swap facility" are highly unlikely to be "resold" a second time and can only be used to obtain liquidity through collateral. According to the relevant rules of the central bank bill swap tool, "the swapped central bank bills cannot be used for spot transactions, outright repurchase transactions, etc., but can be used as collateral, including as collateral for institutions participating in the central bank's monetary policy operations." Since the "securities fund insurance company swap facility" is similar to the "central bank bill swap tool," we infer that the government bonds and other assets exchanged from the central bank cannot be directly traded in the spot market. In other words, there is no chain of "buying stocks - exchanging for bonds with the central bank - and then selling the bonds."

Fifthly, the initial operation scale of the "swap facility" is 500 billion yuan. If the assessment shows good results, there may be a second and third round.

Sixthly, the effects of the "swap facility" are mainly twofold: first, by revitalizing the existing assets of securities, funds, and insurance companies, it encourages them to actively participate in the market, invigorate the market, and stabilize the market. Second, it prevents non-bank institutions from "cashing out and leaving" due to liquidity issues, preventing market stampedes that may be caused by homogenized trading and redemption pressures.2. Establish a "special re-lending" mechanism to support stock buybacks and increases, encouraging listed companies to repurchase shares and aiding the construction of the investment side of the capital market.

Firstly, the mechanism of the "special re-lending" operates on a "lend first, borrow later" basis. The "special re-lending" for supporting stock buybacks and increases is consistent with the mechanism of other structural monetary policy tools such as the "special re-lending for equipment updating and transformation." That is, commercial banks first issue preferential interest rate loans to listed companies, and then obtain re-lending funds from the central bank. Listed companies use the loans they receive to repurchase shares.

Secondly, "special re-lending" will lead to the injection of base money, but it has significant differences compared to central banks directly "entering the market" to buy and sell stocks, such as with the stabilization fund. The "special re-lending" uses incentive compatibility mechanisms to guide commercial banks to lend to listed companies or major shareholders for the purpose of repurchasing and increasing shares. This process is market-oriented, with commercial banks making fully independent decisions, thus avoiding moral hazard and interest transfer issues. If the central bank directly "enters the market" to buy and sell stocks, it would face criticism for wealth redistribution if it buys low and sells high; and if it buys high and sells low, it would face scrutiny for interest transfer. Moreover, direct stock trading by the central bank would distort market pricing mechanisms and face exit difficulties, while the "special re-lending" approach avoids these issues and may be more suitable for the current situation in our country.

Thirdly, the initial quota for the "special re-lending" supporting stock buybacks and increases is 300 billion yuan, and there is a possibility of further increases in the future.

Fourthly, the "special re-lending" is conducive to guiding listed companies to further increase the intensity of share buybacks, thereby enhancing investors' sense of gain and improving the long-term attractiveness of the stock market. When listed companies repurchase shares with cash as the consideration, using tender offers or集中竞价方式, it is considered as cash dividends by listed companies. In simple terms, buybacks are equivalent to cash dividends and have functions such as optimizing capital structure, maintaining the company's investment value, and improving the mechanism for investor returns.

Overall, the two new tools connect banks, non-bank institutions, and listed companies, the major market participants, through the support of the central bank, encouraging these entities to actively participate in market transactions, discover value, maintain market stability, and gradually materialize the intrinsic stability mechanism of the capital market.

(II) China Securities Regulatory Commission (CSRC): Encouraging long-term capital to enter the market and mergers and acquisitions, two "Opinions" will be issued

1. Further support the entry of long-term capital into the market, and the "Guiding Opinions on Promoting the Entry of Medium and Long-term Capital into the Market" will be released soon.

Firstly, vigorously develop equity-oriented public funds. Whether it is long-term stable institutional investors such as annuities and pensions, or individual investors, when engaging in long-term index investments or other investment portfolio strategies, they cannot avoid fund products. This requires the vigorous development of equity funds and the promotion of high-quality development in the public fund industry. On the one hand, increase product supply and improve the development efficiency of index funds, further enriching the index and products based on the recent A500ETF, and moderately launching small and medium-sized ETF fund products. On the other hand, continue to optimize the public fund fee rate model and reduce the overall industry fee rate level. At the same time, establish an "anti-cyclical layout incentive and restraint mechanism" to promote fund managers to measure the pace of product issuance during periods when the market is relatively high, and to layout against the trend during relatively low periods, playing a role in smoothing market fluctuations.

Secondly, improve the institutional environment for "long-term capital for long-term investment." For example, fully implement long-term assessments of more than three years and increase regulatory tolerance.Thirdly, to severely crack down on all types of illegal and non-compliant behaviors, and to shape a favorable market ecology where medium and long-term funds are "willing to come, able to stay, and develop well."

Fourthly, to increase the intensity with which "national teams" such as Central Huijin increase their holdings in the stock market. This year, funds like Huijin and Zhengjin have been flowing into the market through ETFs, becoming the "ballast stone" of the market. The total scale of ETFs held by Central Huijin has increased from about 110 billion yuan at the beginning of the year to about 570 billion yuan by the end of the second quarter, accounting for nearly 30% of the total scale of stock ETFs.

2. Support corporate mergers and acquisitions (M&A) and reorganizations to further promote the effective allocation of resources, and the issuance of "Opinions on Deepening the Reform of the M&A Market of Listed Companies" is planned.

Firstly, to further clarify the encouraged directions for M&A and reorganizations. One is cross-industry M&A based on the goal of transformation and upgrading, and the other is the acquisition of non-profit assets that help to strengthen the chain, enhance the level of key core technologies.

Secondly, to significantly simplify the review procedures and increase regulatory tolerance. For matters such as reorganization valuation, performance commitments, same-industry competition, and related party transactions, tolerance will be increased according to actual situations.

Thirdly, to enrich the tools for payment of consideration. By using payment tools such as installment issuance of shares and convertible bonds, installment payment of transaction consideration, and installment supporting financing, the flexibility of transactions and the efficiency of fund use will be further improved.

(III) Financial Regulatory Authority: Promote financial asset investment companies under state-owned large banks to better support venture capital investment.

Firstly, financial asset investment companies have become the "new handle" for the banking system to support venture capital investment. Financial asset investment companies established by large commercial banks were initially created to address banks' non-performing assets and to resolve financial risks. The "Guiding Opinions on Banking and Insurance Industries Supporting High-Level Scientific and Technological Self-reliance" issued in December 2021 allowed the piloting of technology enterprise equity investment business that is not aimed at debt-to-equity swaps. To date, China's five major banks, including Agricultural, Industrial, Construction, and Communication, all have wholly-owned financial asset investment companies, namely ICBC Investment, ABC Investment, BOC Asset, CCB Investment, and BOCOM Investment. Before Beijing was included in the pilot scope on August 29, 2024, the pilot scope of equity investment by financial asset investment companies was limited to Shanghai.

Secondly, in recent years, bank-owned financial asset investment companies have been active in the equity investment market. For example, in June 2023, ICBC Investment co-invested with Suzhou Venture Capital and others to establish a 20 billion yuan Suzhou Industrial Innovation Cluster Fund母子 fund; in August 2024, ICBC Investment established three funds, namely Green Industrial Finance Investment Green Energy Equity Investment Partnership, Green Industrial Finance Investment Green Energy Equity Investment Partnership, and Beijing State Energy Industrial Chain Equity Investment Fund, with a total investment of 26 billion yuan.

Thirdly, the Financial Regulatory Authority plans to promote the support of financial asset investment companies for scientific and technological innovation and venture capital investment by expanding the pilot scope, relaxing investment restrictions, and optimizing assessments. Firstly, expand the scope of pilot cities, increasing the pilot scope from the original Shanghai to 18 large and medium-sized cities with active scientific and technological innovation, including Beijing. Secondly, appropriately relax the restrictions on the amount and proportion of equity investment, increasing the proportion of on-balance-sheet investment from the original 4% to 10%, and the proportion of investment in a single private equity fund from the original 20% to 30%. Thirdly, optimize assessments and establish a long-term, differentiated performance assessment system. The implementation of these measures, on the one hand, will introduce long-term funds into the primary market and expand the fundraising sources for VC/PE; on the other hand, it will help to deeply explore the potential of the indirect financing system for venture capital investment and scientific and technological innovation, better supporting the high-quality development of the real economy.