BEIJING, Aug 24 (Reuters) – China has opened applications for an 800 billion yuan ($119 billion) policy-based financing tool for local government projects to shore up slowing economic growth, although a securities firm said the later roll-out could limit its impact this year.
China’s fixed-asset investment contracted 6.7% in the first seven months of 2026. Reuters reported previously the decline came as local officials faced stricter scrutiny of capital spending, which authorities blame for unproductive infrastructure projects, industrial overcapacity and deflationary price wars among manufacturers.
Implementation guidelines have been circulated to local authorities, which are now compiling and submitting eligible projects to Beijing for review, according to the state-backed Economic Information Daily.
The process from application through to fund disbursement is likely to take at least a month, Caitong Securities said in a report on August 20, suggesting the tool may provide only limited support to financing demand and construction activity this year.
MORE STIMULUS NEEDED AS GROWTH SLOWS
The instrument, announced by the government in March, is a quasi-fiscal tool designed to provide project capital and leverage larger amounts of private and bank financing for infrastructure and strategic sectors. Beijing increased its size from 500 billion yuan in 2025.
Economists said the instrument was not used in the first half of the year due to a shortage of eligible projects amid local debt curbs and less need for stimulus after China’s economy started the year on a relatively firm footing.
The country’s GDP growth slowed to 4.3% in the second quarter, the slowest in more than three years and below forecasts. It grew 5.0% in the first quarter.
The tool is designed to provide project capital and ease financing constraints for projects already in the planning stage or with preliminary approvals, rather than create entirely new investment demand, Caitong Securities said.
Caitong estimates that the 800 billion yuan programme could support around 10 trillion yuan in total project investment, assuming a leverage ratio of about 13 times. But the direct boost to investment within this year may be closer to 2 trillion yuan, or two to three times the initial funding, because of implementation delays and a shortage of bankable projects.
It expects policy bank bond issuance to accelerate in August and September, while local governments may also speed sales of special-purpose bonds tied to approved projects.
Assuming the tool for this year will be implemented in the third quarter, Goldman Sachs analysts estimate a baseline GDP impact of 0.5 percentage points, probably concentrated in late 2026 and early 2027.
($1 = 6.7231 Chinese yuan renminbi)
(Reporting by Ellen Zhang and Kevin Yao; Editing bt Kate Mayberry)
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