PBOC Governor Pan Gongsheng: Financial Sector to Curb 'Involution' via Differentiated Policies

During the "15th Five-Year Plan" period (2026-2030), China's credit structure is expected to be further optimized to better support economic restructuring and transformation. People's Bank of China (PBOC) Governor Pan Gongsheng recently stated in a signed article that the central bank will strengthen coordination with industrial policies, guide financial institutions to scientifically assess risks, and implement targeted, differentiated measures to curb "involution-style" competition in certain industries.

According to industry experts, this signals a fundamental shift in the logic of financial resource allocation: credit supply will move away from the old model of fueling extensive capacity expansion, toward precisely supporting industrial supply optimization, enterprise technology iteration, and the orderly phase-out of outdated capacity.

From Quantitative Expansion to Structural Quality Improvement

The "15th Five-Year Plan" outline calls for establishing a capacity monitoring and early warning mechanism, and adopting measures such as planning guidance, capacity regulation, price governance, and industry self-discipline to comprehensively address "involution-style" competition.

Since the beginning of this year, financial regulators have repeatedly voiced support for industrial "anti-involution" efforts, demonstrating a consistent and coherent policy approach:

• March 6: At a press conference on the economy during the 14th National People's Congress, Pan Gongsheng stated that the PBOC would guide financial institutions to optimize credit structure, curb "involution-style" competition in some industries from a financial perspective, and support economic restructuring and transformation.
• March 22: Speaking at the China Development Forum 2026, Pan reiterated that the PBOC would guide financial institutions to scientifically assess risks and curb financing for industries engaged in "involution" competition.

"A series of statements essentially require financial resources to shift from 'following collateral and scale expansion' to risk pricing that places greater emphasis on industry cycles, technological content, cash flow quality, and compliance costs," said Zeng Gang, president of the Tianfu Liyan Institute of Finance, in an interview with Shanghai Securities News.

Zeng elaborated that for projects involving redundant construction, high-debt expansion, long-term below-cost sales, and a lack of technology iteration, capital constraints and financing thresholds should be raised. Conversely, enterprises with core technologies, marketable products, and the ability to merge and integrate inefficient capacity should continue to receive financing support.

Ming Ming, chief economist at CITIC Securities, told reporters that the logic of credit allocation will shift from "quantitative expansion" to "structural quality improvement." "Coordination with industrial policies" means credit resources will be directed toward areas such as technology innovation, green development, and high-end manufacturing.

Defining Boundaries: "Support and Control" Without Blanket Measures

Recently, the National Development and Reform Commission and the State Administration for Market Regulation issued documents targeting low-price disorderly competition in key industrial product sectors. As a combination of industrial measures to address "involution-style" competition gradually takes shape, how should the financial sector coordinate?

Industry insiders believe that the prerequisite for "support and control" in credit allocation lies in clearly defining the boundary between "involution" and normal competition.

"The core difference is whether effective innovation and efficiency improvement are achieved," said Pang Ming, a member of the China Chief Economist Forum. He proposed specific screening criteria: financial institutions should, based on capacity monitoring and early warning mechanisms and industry access standards, combine indicators such as energy consumption, emissions, technological level, value creation, and position in the industrial chain to assess a company's technology premium, total factor productivity, and return on capital. This would distinguish between advanced capacity that can be supported and inefficient capacity that needs to be compressed.

At the practical level, multiple experts interviewed agreed that establishing a dynamic linkage mechanism between capacity monitoring and early warning systems and credit granting lists is a key lever for implementing "support and control."

Zeng Gang suggested that data such as capacity utilization rates, investment growth, inventory and prices, environmental protection and energy consumption, and corporate defaults could be incorporated into industry monitoring and early warning systems, and linked to bank credit approval, post-lending management, and stress tests. For industries under warning, total volume limits, concentration management, and list-based credit granting should be implemented.

"The list should distinguish between new expansion projects, technology upgrade projects, merger and reorganization projects, and normal working capital needs. The former should be strictly controlled, while the latter three categories can receive differentiated support," Zeng said.

Avoiding Blanket Loan Withdrawals That Harm Advanced Capacity

How can "one-size-fits-all" loan withdrawals and terminations that harm advanced capacity and innovative enterprises be avoided? Pang Ming stated that banks should shift from focusing on asset collateral and static financial statements to penetrating assessments of technology patents, industrial chain position, and core teams. For advanced manufacturing enterprises at the bottom of the cycle or hard-tech startups in their early stages, due diligence exemption systems should be implemented, and measures such as phased extensions, loan renewals, and investment-loan linkages should be used to ensure the safety of their R&D funding and innovation flexibility.

Ming Ming suggested that banks need to build multi-dimensional risk control models, classify enterprises by technology level and energy efficiency, set tiered credit standards, reserve special quotas for innovative enterprises, and introduce professional review mechanisms from an industry perspective.

Two-Way Governance for a Virtuous Cycle

It is worth noting that the "anti-involution" efforts are not solely directed at the industrial sector. In his aforementioned article, Pan Gongsheng made clear the need to continuously address "involution-style" competition and fund idling within the financial industry itself.

"Double involution in some industries and the financial sector not only harms healthy industrial development but also weakens banks' ability to operate prudently," Pang Ming said.

In Ming Ming's view, during the "15th Five-Year Plan" period, the financial industry's own "anti-involution" efforts, combined with curbing "involution-style" competition in certain industries, are expected to force the phase-out of inefficient capacity through credit structure optimization, channeling resources toward high-quality leading enterprises and innovative entities.

"Financial intervention in industrial 'anti-involution' means that credit resources can no longer indiscriminately serve capacity expansion, but must instead serve supply optimization, technology upgrades, mergers and reorganizations, and the orderly exit of inefficient capacity," Zeng Gang further analyzed.

For industries with "involution-style" competition, financing will place greater emphasis on project returns and full-lifecycle risks. The cost of capital for inefficient expansion enterprises will rise, while high-quality enterprises can use M&A loans, bonds, and equity financing to increase concentration and generate innovation premiums. For the banking industry, it also needs to address its own "involution" of competing for customers with low interest rates and using maturity mismatches to expand scale.

"Through two-way governance of industry and finance, we can not only improve resource allocation efficiency but also maintain the stable operation of the banking system, achieving a virtuous cycle between finance and the real economy," Pang Ming concluded.