April 16, 2024, the official website of the National Financial Regulatory Administration announced the "Notice on Deepening Financial Services for the Manufacturing Industry to Help Promote New Industrialization." The "Notice" was jointly issued by the National Financial Regulatory Administration, the Ministry of Industry and Information Technology, and the National Development and Reform Commission on April 3, and consists of seventeen measures. The notice clearly sets out the overall requirements for financial services in the manufacturing industry, with a particular emphasis on the important task of financial support for the construction of a manufacturing powerhouse and the advancement of new industrialization. In the future, efforts will be made from four aspects: optimizing financial supply, improving the service system, strengthening risk prevention and control, and reinforcing organizational guarantees, to comprehensively enhance the level and quality of financial services for the manufacturing industry.

For semiconductor companies, from the supply side, the "Notice" emphasizes that banking and insurance institutions should go all out to support the security and stability of the industrial chain and supply chain. Especially in relatively weak areas such as basic components and industrial software, it is necessary to increase financial support and promote the standardized development of supply chain finance to ensure the smooth and efficient operation of the capital chain. From this perspective, semiconductor component companies and EDA software companies are expected to benefit.

Advertisement

Regarding the development of industrial science and technology innovation, the "Notice" calls for the improvement of a science and technology investment and financing system that matches risks with returns. This will help provide full-life-cycle financial services for technology-based enterprises, ensuring that they receive the necessary financial support at every stage of their growth. On January 12, 2024, the Financial Regulatory Administration issued a notice on strengthening the full-life-cycle financial services for technology-based enterprises, implementing a series of differentiated management requirements, such as performance assessment, due diligence exemption, and non-performing loan tolerance, to better meet the diversified financial needs of technology-based enterprises.

From the demand side, customers of semiconductor companies are expected to be driven, thereby promoting the prosperity of the semiconductor-related product market. The "Notice" requires banking and insurance institutions to actively support the optimization and upgrading of the industrial structure. This includes optimizing the financial supply for foreign trade in manufacturing, strengthening export credit insurance, and especially supporting enterprises in the automotive and home appliance industries to "go global" and participate in international competition. The growth of domestic automotive and home appliance brand companies will help various domestic chips enter their product lines.

Since 2024, the state has released a variety of policies to stimulate the manufacturing industry and technological innovation enterprises.

On April 7, the People's Bank of China announced the establishment of a 500 billion yuan science and technology innovation and technical transformation re-lending facility, based on the integration of the original science and technology innovation re-lending and the special re-lending for equipment updates and upgrades. The aim is to encourage and guide financial institutions to increase their financial support for technology-based small and medium-sized enterprises, key areas of technical transformation, and equipment update projects.

The new science and technology innovation and technical transformation re-lending facility has the same targets, interest rates, and terms as the original two special re-lending facilities, with an interest rate of 1.75%, a term of one year, and the possibility of two extensions, each for one year. The targets include 21 financial institutions such as the China Development Bank, policy banks, state-owned commercial banks, China Postal Savings Bank, and joint-stock commercial banks.

This policy of the People's Bank of China responds to the "Action Plan for Promoting Large-Scale Equipment Updates and the Replacement of Consumer Goods with Old Ones" (hereinafter referred to as the "Action Plan") released by the State Council on March 7. The "Action Plan" states that by 2027, the scale of equipment investment in industries such as industry, agriculture, construction, transportation, education, culture and tourism, and healthcare will increase by more than 25% compared to 2023; the energy efficiency of major energy-consuming equipment in key industries will basically reach energy-saving levels, the proportion of production capacity with environmental performance at level A will significantly increase, the penetration rate of digital R&D design tools and the numerical control rate of key processes in large-scale industrial enterprises will exceed 90% and 75% respectively; the recycling volume of scrapped cars will double compared to 2023, the transaction volume of second-hand cars will increase by 45% compared to 2023, the recycling volume of scrapped home appliances will increase by 30% compared to 2023, and the proportion of recycled materials in resource supply will be further improved.

After the announcement of the "Action Plan," it has sparked active discussions in all sectors of society. The general consensus is that the "Action Plan" will be beneficial for consumption and investment, promoting energy saving and carbon reduction while increasing advanced production capacity. The policy of the People's Bank of China this time reflects the support of the People's Bank of China for the "Action Plan."Looking at the policy content, the "Action Plan" will significantly promote the markets for automobiles, industry, agriculture, and consumer goods, and the semiconductor industry is closely linked to these markets. On one hand, integrated circuit-related products will see an increase in sales due to demand-side updates; on the other hand, the related equipment of integrated circuit companies is also expected to welcome updates.

01

What does the industry think?

Regarding this issue, the semiconductor industry has interviewed professionals from banks. The banking sector believes that for the semiconductor industry, the introduction of this policy brings overall benefits, but it is necessary to withstand the economic or industry downturn cycle. The current economic environment is like a barrier lake, urgently needing new breakthroughs to release demand and stimulate growth. This process is long and full of unknowns and challenges. The central bank's support for large credit funds fully demonstrates the country's determination and support for technology-related industries.

Such actions are related to our country's system, that is, the principle of socialism to do big things, so government policies are strong, and the allocation of funds is timely. Globally, this is also our country's institutional advantage and should not be ignored. On the other hand, looking back at the banks themselves, they pay more attention to risks or risk control in the implementation. If the bank's funds cannot be recovered after being supported, it becomes a bad debt, which is linked to the bank's assessment. Too many bad debts make it difficult to support new enterprises, and the industry will be once bitten by a snake, and for ten years, it will be afraid of the well rope.

This round of new policies also sends a signal to major banks, and in terms of assessment policies, it keeps pace with the times, showing more tolerance and support for bad debts generated by banks in technological innovation, scientific and technological innovation, and re-lending. In this way, from the perspective of bank implementation, there will be more tolerance and review, and enterprises can obtain more preferential policies, lower interest rates, and higher loan amounts to get through difficult times, and be grateful for the good policy support and protection given by the country and society to the industry.

Regarding the semiconductor industry, for reasons known to all, our country's semiconductor industry has been greatly affected since 2018. However, technical blockades have not stopped our country's technology, but have made rapid progress. This is inseparable from the country's strong support for semiconductor industry policies, and also inseparable from a large amount of investment in equity and debt investment. The bank's approval end also shows more tolerance. In the economic downturn cycle, no industry is easy, and semiconductors, as the pearl on the crown and the industry that is hard to control, bear more pressure.

In addition, the Federal Reserve's interest rate hikes, the global dollar flow back to the United States, and the United States' harvesting of the yen have had a significant impact on our country's overall economic situation, with obvious effects on foreign exchange, foreign trade, and foreign investment. The 500 billion yuan loan funds are a timely blood transfusion.

Overall, as long as enterprises, society, and the entire industry have more tolerance and tolerance for semiconductors, and work together to overcome difficulties, the dawn will be very good.Regarding the 500 billion, what semiconductor companies need to know

The People's Bank of China has stated that the establishment of re-lending for scientific and technological innovation and technological transformation will be beneficial in guiding financial institutions to provide credit support to technology-based small and medium-sized enterprises in their start-up and growth stages, as well as to key areas for digitalization, intelligentization, high-endization, and greening of technological transformation and equipment renewal projects. According to relevant personnel from the People's Bank of China, financial institutions, based on enterprise applications and referring to the list of candidate enterprises and project inventory provided by the industry authorities, will independently decide whether to grant loans and the terms of the loans according to the principle of bearing their own risks. Financial institutions apply to the People's Bank of China for re-lending, and the People's Bank of China reviews the loan accounts. For loans that meet the requirements within the list of candidate enterprises or project inventory, the People's Bank of China issues re-lending to financial institutions at 60% of the loan principal.

Scientific and technological innovation re-lending and equipment renewal and transformation re-lending are two types of re-lending. For semiconductor companies, they do not need to meet both of these at the same time. Therefore, either it belongs to scientific and technological innovation, or the company belongs to equipment renewal and transformation, and thus has the opportunity to receive more favorable loan support policies from banks. With the policy tailwind, banks will be more willing to do business with such enterprises.

Zhao Lian's Chief Researcher Dong Ximiao stated that scientific and technological innovation and technological transformation re-lending follow the "loan first, borrow later" direct model, which organically integrates market-oriented principles with policy support, and will further enhance the enthusiasm of financial institutions to support service innovation and large-scale equipment renewal under the premise of risk prevention.

Dong Ximiao pointed out that small and medium-sized banks are quick to respond to market and customer needs and have a relative advantage in product and service innovation. They are a key force in supporting scientific and technological innovation and equipment renewal, especially in serving technology-based small and medium-sized enterprises. The distribution of this scientific and technological innovation and technological transformation re-lending is limited to 3 policy banks, 6 large commercial banks, and 12 joint-stock commercial banks, while city commercial banks, private banks, and rural commercial banks are not included. In this regard, Dong Ximiao suggested that the re-lending policy should be optimized in the future, and high-quality small and medium-sized banks should be considered as distribution targets to better support them in leveraging their flexible mechanisms and maintaining a more stable development in serving technology-based small and medium-sized enterprises. The cycle of scientific and technological innovation is long and the uncertainty is high, so it is recommended to moderately extend the term of scientific and technological innovation and technological transformation re-lending, or increase the number of renewals, to better meet the actual needs of the development of science and technology finance.

03

Semiconductor companies should not forget their original intention

According to the data from the Securities Times, almost all the enterprises that obtained large amounts of financing in the top ten financing cases of the primary market in 2023 are concentrated in the fields of semiconductors and new energy vehicles. At the same time, industrial capital and national funds have become the main financiers behind these large financing cases. However, it must be admitted that we have also seen many chip companies "come and go." Dialectically speaking, on the one hand, this is the difficulty of the semiconductor industry, and on the other hand, it also exposes the shortcomings in the development of domestic semiconductor industries.

The policy tailwind has risen, and we look forward to the spring.