300 Billion Yuan in Special Bonds Coming! State-Owned Major Banks to Welcome New Round of Recapitalization, Representatives and Members Discuss Banking Sector

This article is sourced from Times Weekly, authored by Huang Yukun.

Finance is the lifeblood of the national economy and a vital component of a country’s core competitiveness. According to statistics, the government work report this year mentioned “finance” 22 times, covering topics such as monetary policy, risk mitigation, and technological finance.

During this year’s National Two Sessions, multiple NPC deputies and CPPCC members discussed hot topics in the financial sector. They focused on key issues such as the development of small and medium-sized banks, prevention and resolution of financial risks, and promoting financial support for technological innovation, actively offering suggestions and proposals.

Galaxy Securities research report believes that the 2026 National Two Sessions will adhere to a steady progress tone, with proactive macro policies, coordinated efforts in fiscal and financial sectors, and a focus on quality and efficiency. The banking industry will enter a critical phase of structural adjustment, mode transformation, and valuation reshaping. Policies to expand domestic demand will guide banks to develop comprehensive financial services around technological innovation, new productive forces, and major strategic areas. Although short-term interest rate spreads remain under pressure, improvements in liability costs, competitive order, and business models will provide buffers.

Source: TuChong Creative

On Capital Supplementation: Regular Issuance of Special Bonds for Small and Medium Banks

Capital strength is the foundation for banks to support the real economy and the fundamental guarantee for banks to resist risks and expand their businesses.

According to the State Administration of Financial Supervision, by the end of 2025, the capital adequacy ratios of large state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks were 18.16%, 13.58%, 12.39%, and 13.18%, respectively, representing decreases of 0.17%, 0.40%, 0.58%, and 0.30% from the previous year. Notably, city and rural commercial banks have significantly lower capital adequacy levels compared to large banks.

The government work report proposes issuing 300 billion yuan in special national bonds to support capital replenishment for large state-owned commercial banks. In 2025, the Ministry of Finance issued 500 billion yuan in special bonds to support capital increases for large state-owned banks, with Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank having completed their capital replenishments. Analysts believe that ICBC and ABC will be the main recipients of the new round of special bonds.

Dong Ximiao, Chief Economist at Zhaolian and Deputy Director of Shanghai Financial and Development Laboratory, analyzed for Times Weekly that increasing core Tier 1 capital of large commercial banks through special bonds will enhance their stability and ability to serve the real economy, promoting financial security and high-quality economic development.

Compared to large banks, the much larger number of small and medium-sized banks have always faced challenges in capital replenishment.

Capital supplementation for small and medium banks has been a hot topic at recent National Two Sessions. In 2021, the government work report proposed continuing multi-channel capital support for small and medium banks; in 2023, it emphasized coordinated efforts to supplement capital and reform risk mitigation; this year, the government work report again called for multi-channel efforts to increase capital.

During this year’s National Two Sessions, some deputies and members proposed establishing a long-term mechanism for capital replenishment of small and medium banks through the issuance of special bonds.

Small and medium bank special bonds are bonds issued by provincial governments, with funds specifically used to supplement the capital of small and medium banks. The latest issuance was in July 2025, when Jilin Province issued 26 billion yuan in support of small and medium bank bonds. The funds, combined with 8.6 billion yuan from previous issuances in 2021, totaling 34.6 billion yuan, were injected into the newly established Jilin Rural Commercial Bank to strengthen its capital.

Liu Ya, a National People’s Congress deputy and President of Beijing Branch of China Export-Import Bank, believes that allowing local governments to issue special bonds to supplement small and medium banks’ capital is significant for alleviating capital shortages and promoting stable development. Many provinces have used these bonds to support reforms and the establishment of provincial city commercial banks and rural commercial banks, coordinating risk resolution and reform across the financial system.

Liu Ya pointed out that since their innovative launch in 2020, the issuance of small and medium bank special bonds has seen concentrated issuance in 2023 and gradual winding down in 2024, opening new avenues for reasonable capital supplementation. Over four years, 597 banks have received bond injections, including 547 rural cooperative institutions and 50 city commercial banks. The practice of using special bonds to support small and medium banks has accumulated rich experience.

To enhance the sustainable development capacity of small and medium banks, Liu Ya suggests that, under the guidance of financial regulatory authorities, provincial-level regular issuance of small and medium bank special bonds should be established to help build a long-term capital replenishment mechanism.

Liu Ya also noted that during this year’s National Two Sessions, Huang Yi, Chairman of Sichuan Tianfu Bank, proposed improving the capital replenishment mechanism, expanding channels for issuing special capital tools, supporting more high-quality small and medium banks to issue convertible bonds and innovative secondary capital bonds with fixed-term conversion clauses, and simplifying approval procedures.

Huang Yi further suggested extending and expanding pilot programs for local government special bonds to support small and medium banks’ capital, exploring the establishment of “capital support funds” or risk-sharing mechanisms to boost market confidence.

Looking ahead, long-term funds including insurance capital may also become channels for bank capital replenishment. On March 6, Li Yunze, Secretary of the Party Committee and Director of the Financial Supervision and Administration Bureau, stated that besides central government issuance of special national bonds, more social funds could be mobilized through market-based approaches, including insurance funds, to further broaden capital replenishment channels.

On Reducing Quantity and Improving Quality: Building a Differentiated, Characteristic Chinese Banking System

Recently, six rural commercial banks in Xuzhou—Xuzhou Rural Commercial Bank, Xinyi Rural Commercial Bank, Feng County Rural Commercial Bank, among others—issued notices for temporary shareholder meetings to review proposals such as “Establishment and Merger of Jiangsu Xuzhou Rural Commercial Bank Co., Ltd. and Cancellation of Original Legal Person Status.” This indicates that these six banks will soon merge to form a new Xuzhou Rural Commercial Bank.

In recent years, the number of small and medium-sized banks has continued to decline. Data from Enterprise Early Warning shows that over 450 banks are expected to exit the market by 2025, most of which are local rural cooperative institutions and village banks.

The government work report emphasizes standardizing competition among financial institutions and advancing the reduction and quality improvement of local small and medium-sized financial institutions.

Sichuan CPPCC member and former Party Secretary and Chairman of Sichuan Bank, Lin Gang, stated that although some provinces have achieved “dynamic zeroing” of high-risk small financial institutions and initial results of reform and restructuring are emerging, overall, mergers and reorganizations of small and medium financial institutions are still in the exploratory stage, with issues such as unclear responsibilities and difficulties in raising funds.

He proposed several suggestions, including adhering to market-oriented and rule-of-law principles, clearly defining responsibilities among participants in mergers and reorganizations, accelerating the construction of a collaborative system led by government guidance, regulatory support, institutional leadership, and market operation. Provincial governments should take primary responsibility for coordinating mergers and reorganizations within their jurisdictions, formulate regional restructuring plans, resolve major issues, and implement local funding obligations. Risk asset disposal policies should be relaxed, allowing merger entities to transfer or write off non-performing assets in batches, simplifying approval processes to improve efficiency, and providing necessary support in business development and licensing to help banks grow stronger and develop steadily. During restructuring, support measures such as tax reductions and financial subsidies should be provided to reduce disposal costs.

NPC deputy and Chairman of Xiamen International Bank, Wang Fei, believes small and medium banks are key to connecting the “last mile” of financial services. Building a Chinese-style banking system involves guiding various banks, especially small and medium-sized banks, toward differentiated and sustainable development, which is crucial for accelerating the construction of a financial powerhouse, ensuring financial stability, and enhancing China’s international financial competitiveness and influence.

Wang Fei recommends constructing a layered, orderly, differentiated, and mutually complementary banking system. Clear differentiation of goals for various types of banks, improving policies for market entry, rating indicators, and assessment criteria, will create a diverse, multi-level, multi-channel financial organization system. This will guide banks to leverage their comparative advantages, provide differentiated financial services, and avoid ineffective internal competition. Additionally, policy support and guidance for local small and medium banks should be strengthened, with macro policies and local efforts working together to support their development according to local conditions and bank characteristics.

On Technological Innovation: Improving Investment-Loan Linkage Mechanisms and Expanding Corporate Financing Channels

The Central Financial Work Conference emphasized the “Five Major Articles” of finance, with technological finance ranked first. During this year’s National Two Sessions, a key focus among deputies and members was how banks can accelerate guiding technological innovation.

NPC deputy and former Director of Beijing Securities Regulatory Bureau, Jia Wenqin, believes that developing investment-loan linkage business is vital for directing more financial resources toward technological innovation and smoothing the “technology-industry-finance” cycle. However, current implementation faces bottlenecks and difficulties, such as insufficient internal mechanisms within banks, lack of willingness among investment institutions to collaborate, and incomplete policy support systems.

He suggests establishing standardized cooperation platforms for investment-loan linkage, promoting private equity fund managers to share key information with banks via standardized interfaces, and improving profit-sharing mechanisms between banks and investors, including participation rights in excess returns through warrants. Banks should develop dedicated credit rating and risk control models for tech startups, focusing more on growth potential; set long-term assessment systems; refine due diligence and exemption policies; and enhance multi-department collaboration. Private equity fund managers should establish standardized investment research and risk control processes.

For banks, tech companies often have light assets, high growth, and high risks, making traditional credit evaluation systems inadequate for accurately assessing their value and risks.

According to Zhang Yongqiang, member of the CPPCC and Vice Chairman of the Hebei Provincial Committee of the Revolutionary Committee of the Chinese Kuomintang, high R&D costs, long profit cycles, and difficulties in financing due to lack of collateral are common challenges for tech SMEs. Banks need high-quality clients but find it hard to evaluate the innovation capacity and growth potential of tech firms, leading to information asymmetry and reluctance to lend.

He recommends better leveraging the role of technological finance coordination mechanisms, utilizing the joint support system for tech enterprise financing, and forming policy synergies among technology, finance, and fiscal sectors. Strengthening cooperation with leading financial institutions, establishing a "points +” linkage model, and expanding the application of “innovation points” systems. Improving diversified tech financial services to effectively address market failures in tech finance, fostering a high-level virtuous cycle among technology, industry, and finance. Promoting information sharing, mutual recognition of results, and coordinated support among tech departments, investors, banks, and insurers to broaden corporate financing channels, ensuring funds for R&D and insurance for unexpected risks.

Regarding the relatively high financing costs for private tech startups, CPPCC member and Chairman of Qihoo 360 Technology Group, Qi Xiangdong, proposed targeted measures to “precisely drip” funds into the supply chain and enhance financial empowerment for innovation. This includes expanding coverage of intellectual property and equity pledge loans, establishing a tech innovation financing guarantee fund, and reducing the financing costs for private tech enterprises.