China Steps Up to Support Tech Innovation | ETF Trends

In an effort to foster more confidence in the economy, China is stepping up to support its technology sector.

The People’s Bank of China (PBOC) announced relending program worth nearly $70 billion aimed at stoking innovation among Chinese science and technology companies, indicating there could be positive implications for exchange traded funds such as the KraneShares Hang Seng TECH Index ETF (KTEC).

KTEC, which tracks the Hang Seng TECH Index, holds just 30 large-cap, Hong Kong-listed stocks. Still, the nearly three-year-old ETF features admirable breadth. It provides exposure to companies with footprints in high-octane industries such as cloud computing, e-commerce, and fintech, among others.

Why PBOC Policy Matters

The PBOC is providing friendly terms of 1.75% on loans to smaller and mid-sized science and technology companies. While that policy might not be directly applicable to KTEC holdings, it could serve the aim of restoring confidence in the world’s second-largest economy. This is important amid sluggish growth and concerns about the state of the Chinese property market.

Twenty-one Chinese banks will extend the loans. They can be used for equipment upgrades and research and development purposes. Banks can extend the loans twice, according to the PBOC. Global investors may appreciate this policy. This is especially true at a time when those market participants are searching for the next catalysts of Chinese GDP growth beyond infrastructure and real estate.

Additionally, the PBOC effort signals commitment by Beijing to continue ramping up China’s technology to reduce dependence on Western exports. Should that effort prove successful, KTEC member firms could benefit over the long-term.

China’s new tech-focused lending program could also have geopolitical ramifications. Western governments, including the U.S. and Europe, are taking steps to halt the transfer of intellectual property to China. Additionally, those governments are attempting to keep crucial, high-level semiconductor technology and chipmaking equipment out of China. Those are clear signs that the domestic tech sector warrants China’s investments in it, and they could pay dividends over the long haul.

“The country’s policymakers have stepped up investments in cutting-edge technology including semiconductors, electric vehicles, quantum computing, commercial spaceflight and life sciences – areas where many Western firms hold advantages,” reported AsiaFinancial.

Unrelated to the tech lending scheme, KTEC holdings could see further benefit if Beijing loosens capital controls which would allow more Hong Kong-listed companies to engage in shareholder rewards programs. There is merit in that line of thinking. Mainland China investors are among the largest investors in Hang Seng-listed stocks.

For more news, information, and analysis, visit the China Insights Channel.