China’s expanded 800 billion yuan ($119 billion) policy financing tool began accepting project applications on Monday, but implementation has lagged as local governments face hurdles in compiling eligible bids.
The State Council’s quasi-fiscal instrument, increased from 500 billion yuan earlier this year, aims to leverage private and bank financing for infrastructure and strategic sectors. Guidelines were distributed to regional authorities in March, yet only a fraction of the funding has been deployed in the first half of 2026 amid stricter scrutiny of capital spending.
Caitong Securities estimates the tool could support up to 10 trillion yuan in total project investment, with a potential 2 trillion yuan direct boost to fixed-asset spending this year—two to three times the initial outlay—assuming a leverage ratio of about 13 times. Goldman Sachs projects a baseline GDP impact of 0.5 percentage points, concentrated in late 2026 and early 2027.
Economic momentum has slowed, with fixed-asset investment contracting 6.7% in the first seven months of 2026 and second-quarter GDP growth decelerating to 4.3%, the weakest pace in over three years. Beijing has cited concerns over unproductive infrastructure, industrial overcapacity, and deflationary pressures as reasons for tighter capital controls.
Local authorities are now compiling project lists for central review, but the application-to-disbursement process is expected to take at least a month, according to a report by Caitong Securities published last week. Policy bank bond issuance is anticipated to accelerate in August and September, with third-quarter implementation seen as critical for the tool’s annual deployment.
