China’s Fiscal-Financial Package: Stimulating Private Investment Amid Weak Credit Demand

Data released for 2025 showed that new bank lending in China, totaling approximately RMB 16.27 trillion, was the lowest in seven years, signaling weak appetite for credit among private enterprises and households and highlighting broader economic headwinds stemming from a protracted property downturn. While trade and exports remained strong, weak domestic borrowing underscored challenges in stimulating investment and consumption from within the domestic economy. In response, policymakers and the People’s Bank of China have signaled potential adjustments to monetary policy tools, including interest-rate and reserve requirement cuts to improve liquidity and encourage lending.

The core of the fiscal-financial package is a special loan guarantee program backed by the National Financing Guarantee Fund, aimed at reducing credit risk for lenders and increasing the willingness of banks to extend both working capital and fixed-asset financing to private firms. By providing guarantees for medium- and long-term loans, this mechanism targets a well-documented weak link in China’s financial system: insufficient long-term capital for private sector expansion and upgrading. The program’s design, covering operational, expansion, and renovation financing, seeks to create a more conducive borrowing environment for MSMEs, which are critical engines of innovation and employment.

Beyond credit support, fiscal measures are also reinforcing domestic consumption, which has been an uneven driver of recent growth. China’s total retail sales of consumer goods surpassed 50 trillion yuan in 2025, a modest but meaningful increase year-on-year, reflecting ongoing efforts to reposition domestic demand as a stabilizing force amid global uncertainties and external demand pressures. Strengthening consumer markets is seen as essential for sustaining broader investment and economic resilience.

Market analysts interpret the combined fiscal and financial push as a nuanced effort by China’s policymakers to balance short-term stabilization with longer-term structural reform. While traditional credit expansion tools have shown limited traction in reigniting strong private investment, the new guarantee framework, combined with supportive monetary and fiscal policy signals, aims to rebuild investor confidence and provide tangible support to the private sector. If successful, these measures could help bridge the gap between China’s robust export performance and its need for sustained domestic investment growth.