China’s technological competition with the United States is increasingly becoming a contest over something less visible than advanced chips, artificial intelligence or industrial software: who can finance innovation for long enough, and at sufficient scale, to survive a prolonged geopolitical confrontation.
The latest issue of The China Leadership Monitor (CLM) examines how Beijing has responded to a fundamental vulnerability exposed by the first US-China trade war in 2018. China’s earlier concerns about dependence focused largely on economic and financial shocks transmitted through an increasingly integrated global economy. The lesson after 2018 was more politically consequential: interdependence itself could be weaponised.
The US denial order against ZTE in 2018, the addition of Huawei and its affiliates to the Entity List in 2019 and the expansion of the foreign direct product rule in 2020 demonstrated the vulnerability of Chinese companies whose supply chains depended on US-origin technology, software and components. Commercial success, in this environment, could not guarantee strategic security.
Beijing’s answer has been neither complete economic isolation nor an abandonment of globalisation. Instead, China has been constructing what CLM describes as controlled interdependence: remaining embedded in the global economy while reducing the risks of coercion within it.
The official terminology reflects this approach. Chinese policy documents speak of “coordinating development and security” (统筹发展和安全), building a “new development pattern” (新发展格局), achieving “high-level technological self-reliance” (高水平科技自立自强), securing “industrial and supply chains” (产业链供应链安全) and preserving the “strategic initiative” (战略主动).
Since late 2020, these concepts have moved beyond individual industrial policies and towards the centre of China’s national development strategy. Finance, technology and innovation have increasingly been treated as interconnected elements of national security and economic resilience.
The change can be traced to the recognition that technological dependence could constrain China’s development. In 2018, Xi Jinping told leading scientists and engineers that “key core technologies cannot be asked for, bought, or begged for” (关键核心技术是要不来、买不来、讨不来的). The subsequent confrontation with Washington made the warning tangible.
The Fifth Plenum called for development and security to be coordinated and technological self-reliance to become a “strategic support” for national development. Xi subsequently introduced the dual-circulation strategy, placing greater emphasis on the domestic market and self-reliance while maintaining China’s engagement in international trade and investment.
The objective was not to indigenise everything. The priority was technologies capable of driving productivity, shaping future industrial competitiveness, carrying security or dual-use significance, and reducing exposure to foreign restrictions. Advanced chips, semiconductor equipment, industrial software, advanced materials and industrial machinery became part of a wider concern: foreign control over critical technologies could obstruct the productivity gains China needs for its next stage of economic development.
That strategy has now reached the financial system.
China’s traditional bank-dominated financial structure was poorly suited to financing technological innovation. Banks are generally better equipped to lend against tangible collateral, established profits and predictable cash flows. Frontier technologies instead require long development periods, intangible assets and a willingness to tolerate commercial failure.
Beijing’s response has been to redesign the system rather than simply instruct banks to lend.
In March 2023, the Party created the Central Science and Technology Commission and the Central Financial Commission, placing technology and finance under strengthened central Party-level coordination. The institutional change was followed by a series of financial reforms intended to make banks, investment funds, insurers and capital markets more willing to finance strategically important technologies.
The People’s Bank of China became an important mechanism in this effort. In April 2022, it established a RMB 200 billion technology innovation relending facility, subsequently expanded to RMB 400 billion. Participating banks could refinance 60 per cent of an eligible technology loan with one-year central bank funding at 1.75 per cent, renewable twice.
The system deliberately stopped short of direct state lending. Government agencies identified eligible firms, but banks retained the authority to reject applications, determine loan terms and bear default risks.
The architecture subsequently expanded. A 2022 equipment-upgrading facility used 100 per cent PBoC refinancing for qualifying loans. In April 2024, the two separate facilities were replaced with a consolidated RMB 500 billion technology innovation and equipment upgrading relending facility. It was expanded to RMB 800 billion in May 2025 and to RMB 1.2tn in January 2026.
The figures illustrate the potential scale. Assuming full quota utilisation, the 2026 facility could support approximately RMB 2.0tn in qualifying bank loans. But CLM cautions that quotas are ceilings, not actual disbursements. By April 2026, bank lending under the unified relending facility had reached RMB 1.5tn, including RMB 218.8 billion classified as technology-innovation loans.
The purpose is therefore broader than cheap credit. Beijing is attempting to make financial institutions behave more like patient providers of capital while retaining commercial screening and risk-bearing at the transaction level.
Yet cheaper money cannot solve every obstacle facing technological innovation. It cannot create collateral, guarantee predictable cash flows or eliminate the possibility that a technology will fail commercially. That has driven a second wave of reforms across China’s capital markets.
At the June 2024 National Science and Technology Conference, Xi called on financial capital to “invest in early-stage, small-scale, long-term, and hard technology”. Subsequent reforms sought to address the entire investment cycle, from fundraising and early-stage investment through commercialisation and eventual exit.
China’s public equity market was tightened while simultaneously being made more accommodating to strategically important technology firms. The April 2024 “Nine Measures” raised listing standards and increased pressure to remove zombie and shell companies. At the same time, the STAR Market Eight Measures created a specialised route for qualified technology companies, including unprofitable firms possessing core technologies.
The strategy continued in June 2025 with the STAR Market “1+6” reform package and its Growth Layer, creating another route for qualifying technology companies that had technological capability and commercial potential but had not yet achieved profitability.
The state also sought to bring longer-term institutional investors into the market. Insurance funds, social security and pension funds, enterprise annuities and public investment funds were encouraged to provide more stable equity capital, with investment evaluations lengthened from annual assessments to three- to five-year periods.
Venture capital has been similarly reorganised. A national venture capital guidance fund, announced by the National Development and Reform Commission in March 2025, was capitalised with RMB 100 billion from ultra-long special Treasury bonds and formally began operations in December 2025. The intention was to use state capital as an anchor, attracting investment from local governments, state-owned enterprises, banks and private institutions while leaving individual investment decisions to professional fund managers.
The reforms extend into the bond market. By the end of 2024, nearly 94 per cent of outstanding sci-tech innovation bonds had been issued by central and local state-owned enterprises. New rules introduced in May 2025 sought to broaden participation to technology companies, financial institutions and private-equity and venture-capital funds.
Risk-sharing has become another central component. Under a technology SME guarantee plan introduced in July 2024, the government financing guarantee system could assume up to 80 per cent of credit risk, while banks had to retain at least 20 per cent. During 2025, the programme supported approximately 34,400 companies in obtaining more than RMB 140 billion of bank loans.
Technology insurance has been developed alongside these measures. By 2025, regulators reported technology insurance coverage exceeding RMB 2tn. A dedicated twenty-measure framework issued in March 2026 extended the approach to the innovation lifecycle, including research and development, commercial conversion and industrialisation, with specialised products for AI, integrated circuits, quantum technology and brain-computer interfaces.
Taken together, these reforms reveal the distinctive character of Beijing’s emerging financial model.
It is neither conventional state-directed lending nor financial liberalisation. The Party-state determines strategic priorities, identifies eligible technologies, supplies anchor capital, subsidises financing costs and decides which risks will be shared. Banks, investors and professional fund managers retain transaction-level decision-making but operate within boundaries established by the state.
The result is a system designed to achieve greater risk-taking without greater financial autonomy.
That distinction matters because China’s response to American technological pressure is not simply about producing more technology. It is about ensuring that strategically selected companies can continue receiving capital despite the uncertainty, long development cycles and failures inherent in technological innovation.
The broader contest is therefore becoming a competition between financial systems as well as technological systems. The US model is more market-led; China is constructing a mission-driven system in which centralised strategic direction is combined with decentralised investment decisions and selective socialisation of losses.
Beijing is not attempting to eliminate the risks of innovation. It is attempting to redistribute them.
Whether this will produce genuine technological breakthroughs remains uncertain. The domestic system cannot fully replicate the capital, expertise and prestige associated with global financial markets. But greater domestic financing capacity can reduce Chinese technology firms’ exposure to foreign capital restrictions and potential US measures affecting investment or overseas listings.
China’s objective is consequently more ambitious than financial resilience alone. It is building a system intended to ensure that strategic technological development does not fail simply because domestic capital is unwilling to accept the risks involved.
The central paradox is that Beijing is seeking greater technological self-reliance through a financial system that remains deeply controlled by the Party-state. Openness is retained where it serves national objectives; dependence is reduced where it creates strategic vulnerability.
China may not be able to command innovation itself. But the financial architecture now taking shape is designed to make sure that the Party-state can decide which technologies deserve to be financed, how long capital should remain committed, and how much of the inevitable cost of failure the state is prepared to absorb.
In the prolonged technological competition with the United States, that may prove to be one of Beijing’s most consequential strategic investments.
