‘Command Innovation’ Model Builds Momentum: Engineering Capital for Strategic Rivalry

Executive Summary:

• Xi Jinping has elevated Command Innovation to the core logic of the People’s Republic of China’s economy—superseding traditional growth drivers by fusing “self-reliant” strategic-industrial planning with direct financial control. This engineered system gives Beijing new leverage over how capital is deployed and who controls innovation, but its success depends on whether these channels can deliver real breakthroughs without succumbing to misallocation or political drag.
• A phased strategy since 2018 has steadily rewired the PRC’s capital system, starting with crisis-induced self-reliance goals and then consolidating fragmented tools into a unified framework targeting strategic tech sectors. Each stage has pushed the Party closer to treating capital not just as a market input but as an instrument of national power, aligned with its broader geopolitical ambitions.
• In 2025, this model has shifted from design to rapid consolidation and deployment: top-level directives from Xi and Vice Premier Ding Xuexiang have activated new funding mechanisms, re-lending tools, national venture funds, and innovation-focused bond pilots. All of it operates according to explicit political metrics and with direct Party oversight.
• Implementation is now accelerating at the meso level: scoring systems for small and medium-sized enterprises (SMEs), risk-sharing guarantees, revamped capital market rules, and digital supply chain plans are embedding “command innovation” deep into everyday financial practice. Foreign capital flows are being brought under the same umbrella of Party-defined priorities and meso-level controls.

Since 2018, the Chinese Communist Party (CCP) has moved steadily to fuse its innovation strategy with the architecture of national finance. What began as a defensive reaction to U.S. technology sanctions has evolved into a sweeping campaign to reengineer the capital system of the People’s Republic of China (PRC) around long-term innovation and technology self-reliance.

Under Xi Jinping’s leadership, this campaign has gained not only ideological clarity, but institutional force. A new model is emerging that reshapes market rules, steers investment behavior, and redirects credit flows to deliver breakthroughs in sectors the Party deems vital—even when conventional financial logic resists.

What makes this model distinct in 2025 is no longer its ambition, but its scale and coherence. Consolidation of economic authority within the Party Center has stripped away many of the bureaucratic brakes that once diluted policy execution. Financial tools once used for macroeconomic smoothing now serve as delivery systems for Party-defined innovation targets. The strategic logic runs through every level: national venture funds for artificial intelligence (AI) and quantum computing, algorithm-driven credit for small and medium-sized enterprises (SMEs), and regional capital markets refitted for deep-tech equity.

This consolidation marks a deeper shift in how the Party’s financial control apparatus governs risk and capital in a contested global economy. With U.S. and allied sanctions tightening, and foreign capital flows increasingly politicized, Beijing is no longer content to rely on established methods of delivering innovation. It is building a hybrid system in which administrative control, financial engineering, and geopolitical competition are fused (China Brief Notes, June 16).

This centralization nevertheless carries strategic risks. A system designed to force breakthroughs through top-down discipline must navigate misallocation, delayed returns, and the drag of institutional inertia. Whether Beijing’s “command innovation” model succeeds will depend not only on how thoroughly it mobilizes capital but on whether that capital delivers the disruptive advances its leaders now treat as existential.

Consolidating Command: How the Party Rewired Finance for Innovation, 2018–2025

From Mao’s “two bombs, one satellite” (两弹一星) to Deng’s joint ventures and post-Reform industrial policy, the Party has long treated technology as a pillar of national power. In other words, the Party’s pursuit of technological self-reliance is not new (Brookings, April 5, 2021). Xi Jinping has revived this legacy with a clear command economy instinct—elevating tech self-reliance from a strategic priority to a core function of the entire economic system, superseding heavy industry, dual-use manufacturing, and public goods.

Since 2018, this instinct has crystallized into something more systematic: a deliberate push to fuse industrial planning with direct financial control. Each phase in building technological self-reliance (科技自立自强) since Xi’s first term has moved the Party closer to aligning capital markets, credit flows, and regulatory levers with strategic technology priorities—making innovation, not just GDP growth, the raison d’être of the capital system itself. Fittingly, it was a crisis imposed by the PRC’s principal source of advanced technology—and its chief adversary—that exposed hidden dependencies and jolted the Party’s self-reliance strategy into overdrive.

• 2018: ZTE Crisis and Strategic Wake-up Call. U.S. sanctions on ZTE forced the company to halt operations, exposing the PRC’s dependence on foreign suppliers for critical technologies like semiconductors and design software (Bloomberg, April 16, 2018). In May 2018, Xi addressed the Chinese Academy of Sciences, warning that the situation where key core technologies are restricted by others “has not fundamentally changed” (没有得到根本性改变). He urged officials and scientists to “achieve autonomous controllability” (实现 … 自主可控) of those technologies and firmly grasp “innovation advantage” (创新主动权) and “development advantage” (发展主动权) through the accelerated construction of a national innovation system (Xinhua, May 28, 2018).
• 2018–2019: Policy Support for Private Innovation Finance and Launch of the STAR Market. Regulatory groundwork began in 2018, led by the China Securities Regulatory Commission, with more flexible listing and disclosure rules to accommodate innovative but capital-intensive firms (State Council, March 30, 2018). State Council guiding opinions in February 2019 encouraged banks, venture capital, and private equity institutions to increase support for SMEs and high-tech firms (Xinhua, February 14, 2019). This was followed in June by the launch of the Sci-Tech Innovation Board in Shanghai to provide equity access for strategic and deep-tech firms (Shanghai Stock Exchange, June 6, 2019).
• 2019–2020: Second Tranche of the Big Fund. The China Integrated Circuit Industry Investment Fund (国家集成电路产业投资基金; a.k.a. the “Big Fund” (大基金)) launched its second-phase capital raise, ultimately securing over 200 billion renminbi (RMB) ($28 billion). This new round of funding aimed to deepen support for the country’s semiconductor ecosystem by targeting upstream bottlenecks such as materials, equipment, and EDA tools. Crucially, this went beyond just chip fabrication.
• 2021–2022: Beijing Reorients Finance to Serve the “Real Economy” (实体经济). Xi Jinping’s remarks at the December 2021 Central Economic Work Conference (CEWC) emphasized guiding capital toward manufacturing and industrial innovation, laying the ideological basis for later redirection of credit and market access (Xinhua, December 10, 2021). The following April, Xi chaired a meeting of the Central Committee for Financial and Economic Affairs that emphasized the need to enhance financial support for technological innovation and ensure the security and stability of supply chains (Xinhua, April 19, 2022).
• 2023–2024: Centralized Integration of Financial Mechanisms with Technological Innovation Goals. In March 2023, a bureaucratic revamp led to the establishment of the Central Science and Technology Commission (CSTC), a key decision-making body designed to centralize leadership in those domains. In early 2023, the PRC launched an RMB 500 billion ($70 billion) tech re-lending program, expanded intellectual property-based lending, and raised SME risk-sharing ratios to 40 percent. Together, these policies eased financing constraints on high-potential but credit-constrained tech firms. They also coincided with pilot innovation bond programs and growing emphasis on science and tech finance as a strategic asset class.
• 2024: CEWC Sets Stage for Systemic Deployment. The December 2024 CEWC placed innovation and “new quality productive forces” (新质生产力) at the heart of macroeconomic strategy. It called for financial tools to be structurally aligned with long-term technological upgrading and industrial security (Xinhua, December 12, 2024).
• 2025: March Two Sessions Signal Execution. In the most recent government work report, Premier Li Qiang (李强) introduced the “AI Plus” initiative, pledged an 8.3 percent increase in tech spending—nearly double the rate of overall fiscal expansion—and called for capital markets and monetary policy to serve national innovation goals (Xinhua, March 12). In May, the China Securities Regulatory Commission (CSRC) and the People’s Bank of China (PBOC) announced cooperation on bond issuance pilots for science and tech firms (CSRC, May 7).

Within this sequence, events in 2023 marked an inflection point. Previously fragmented financial tools began to converge under a more coordinated national framework. Though implementation remained uneven, these reforms revealed a shift in central priorities toward strategic innovation over growth.

That logic was codified at the 2024 CEWC, which framed “new quality productive forces” as the centerpiece of long-term development and called for aligning financial infrastructure with national security and industrial upgrading. Premier Li Qiang’s 2025 Government Work Report echoed these priorities, advocating targeted structural tools and closer integration between financial and industrial bureaucracies.

These two authoritative documents signaled the transition from institutional centralization to policy activation. Capital markets were being primed to serve as instruments of national resilience and technological sovereignty. That logic was operationalized in April and May through a system-wide rollout of financial tools explicitly designed to fund state-aligned innovation.

Command Innovation Goes Operational: Xi and Ding Activate the Tech-Finance Machine

A series of high-level meetings in April 2025 confirmed that Xi Jinping’s economic strategy had entered a new phase: the activation of institutional levers to serve technological resilience. On April 25, the Politburo held a dedicated economic session that framed external conditions as an “international economic and trade struggle” (国际经贸斗争) (China Brief Notes, May 21). The meeting emphasized stabilization, but within a broader narrative of confrontation—explicitly linking macroeconomic coordination to long-term competition over science, technology, and industrial capacity. For instance, it called for “creating a number of emerging pillar industries” (打造一批新兴支柱产业) and strengthening construction of the “two zhongs” (两重), which refers to the implementation of “major national strategies” (国家重大战略) and construction of “security capabilities in key areas” (国家重大战略) (Sanyuan District Development and Reform Bureau, February 14).

The readout called for conventional easing tools—reserve rate ratio cuts, interest rate reductions, and accelerated bond issuance—with a clear directive: create “new structural monetary policy tools” (新的结构性货币政策工具). This signaled that the Party would redesign financial instruments to channel long-term funding toward sectors where it seeks to engineer breakthroughs. The Politburo outlined multiple targets, putting science and technology finance first, alongside industrial upgrading, advanced manufacturing, and trade integration. The message was unambiguous: monetary and fiscal policy must now serve the innovation imperative.

Three weeks earlier, the Party’s theory and policy journal Qiushi had published a major speech by Xi calling for the PRC to become a “strong country in science and technology” (科技强国) and to lead the next industrial revolution. Delivered the previous year but released strategically ahead of new U.S. tariffs, the speech underscored Xi’s vision of technological strength as a prerequisite for national power. He called on cadres to “lead the new round of scientific and industrial transformation” (新一轮科技革命和产业变革) and accelerate breakthroughs in foundational technologies. There was no reference to growth targets or stimulus. Instead, the focus was on autonomy, resilience, and the need to control the “commanding heights” (制高点) of global innovation (Qiushi, March 31).

That same message was operationalized by Vice Premier Ding Xuexiang (丁薛祥) during a multi-day inspection tour of Xi’an in mid-April, where he translated ideological vision into policy coordination. As director of the CSTC—the Party’s top-level body overseeing innovation strategy—Ding’s remarks served as operational instructions for implementing the new tech-finance agenda (IGCC, September 25, 2024). He outlined priority sectors for concentrated investment: AI, telecommunications, cloud computing, energy systems, and biopharma. Industrial and tech firms, he instructed, should prioritize innovation-driven growth by upgrading legacy platforms, investing in emerging industries, and fostering cross-sector collaboration. He also emphasized the role of venture capital in accelerating commercialization, calling for greater funding of university-based research with market potential. Foreign tech firms were included: Ding encouraged them to reject “tariff wars and trade wars” (关税战、贸易战) and instead pursue mutually beneficial cooperation with PRC partners. Invoking “bottom-line thinking” (底线思想), Ding presented tech development as a core pillar of national security, reinforcing the view that innovation is no longer optional (Xinhua, April 16).

Engineering the Capital System: Venture Capital, Credit, and Parallel Markets

The transition from political signaling to financial execution began almost immediately. The clearest implementation signal came on May 13, when eight of the country’s most powerful economic and regulatory bodies jointly issued a policy document titled “Notice on Several Policy Measures to Accelerate the Establishment of a Science and Technology Financial System to Effectively Support High-Level Scientific and Technological Self-Reliance” (PBOC, May 14). The document outlined a full-stack plan to fund innovation through venture capital, credit, insurance, and capital markets. The key financial bureaucracies involved underscored the political authority behind the initiative. They included the PBOC, Ministry of Finance, State-owned Assets Supervision and Administration Commission (SASAC), and CSRC. This was not routine policy guidance but rather the operational blueprint for the agenda Xi and Ding had articulated just weeks earlier: the construction of a parallel financial system engineered to fund innovation under conditions of geopolitical constraint.

At its core was the launch of a National Venture Capital Guidance Fund, seeded with state capital and directed at deep-tech sectors including AI, quantum computing, and hydrogen energy. Insurance and social security funds were formally authorized to participate in venture activity under regulated conditions, signaling a loosening of longstanding capital channel restrictions in the name of strategic innovation. Additional reforms included lifecycle evaluation of venture capital arms linked to state-owned enterprises, pilot programs for private equity secondary markets (S-funds), and expanded exit mechanisms through regional equity exchanges.

Credit reforms matched this intensity. The PBOC raised re-lending quotas for tech firms and launched new credit tools for mergers and acquisitions, offering 10-year maturities and high loan-to-value ratios. Regulators pushed banks to open dedicated technology finance branches in key innovation hubs, while fresh risk-sharing frameworks reduced internal resistance to longer-term lending. Crucially, the policy introduced due diligence exemptions inside designated innovation zones, cutting red tape and accelerating capital flows into politically aligned projects.

Together, these measures laid the groundwork for the next phase: embedding the new capital system into real institutions and markets.

Embedding Command Innovation: Meso-Level Controls and Capital Discipline

Implementation accelerated rapidly. On May 14, the People’s Daily confirmed that the initial sectoral focus of the new National Venture Capital Guidance Fund would be on AI, quantum computing, and hydrogen energy, aligning financial capital with strategic technology roadmaps (People’s Daily, May 14). Eight days later, on May 22, PBOC vice governor Zhu Hexin (朱鹤新) delivered a detailed update on implementation (PBOC, May 22). He revealed that over RMB 250 billion ($35 billion) in technology innovation bonds had already been issued by more than 100 institutions and announced that the PBOC had increased its dedicated re-lending quota for science and technology from RMB 500 billion ($70 billion) to RMB 800 billion ($112 billion), while reducing the rate from 1.75 percent to 1.5 percent.

Zhu’s remarks revealed a second front in the financial mobilization campaign: the reshaping of investment platforms themselves. The PBOC is now actively encouraging bond issuance by venture capital firms, extending risk-sharing guarantees to long-duration equity investors, and pressuring credit rating agencies to develop innovation-specific methodologies. These moves represent a shift toward proactive institutional engineering, redefining market participants to align with national strategic priorities.

In parallel, new measures embedded these policies into day-to-day financial channels:

• SME Financing Support. On May 21, the National Financial Regulatory Administration (NFRA), together with eight other agencies, issued “Several Measures to Support Financing of Small and Micro Enterprises” (NFRA, May 21). While framed as a stabilization tool, the policy deepened support for politically favored segments: private SMEs in strategic sectors, export-exposed firms, and consumption-linked businesses. The measures included expanded unsecured lending, streamlined loan approvals, adjusted credit classifications, and broadened access to bond and equity financing for SMEs.
• Expansion of Provincial Innovation Pilots. That same week, the Ministry of Science and Technology (MOST), PBOC, and CSRC jointly launched a 15-point policy package to expand innovation finance pilots across 18 provinces, scaling experimentation initiated in previous years (People’s Daily, May 23).
• Innovation Points System 2.0. By late May, implementation had moved from institutional launch to infrastructural embedding. One of the most telling examples was the nationwide rollout of the “Innovation Points System Upgraded Version 2.0” (“创新积分制”升级版0), a data-driven scoring platform developed by MOST to quantify SME innovation potential (China News, May 22). Originally piloted in 2022, the upgraded system integrates an AI-powered “digital intelligence base” (数智底座) and links firm-level scores to credit allocation tools such as points-based loans, guarantees, and investment instruments—institutionalizing it as a foundational layer in the PRC’s science and technology credit infrastructure.
• Capital Market and Risk-Sharing Reforms. This same logic is now being extended across the financial system through a structured division of labor. The CSRC is reforming the STAR Market and Hong Kong Stock Exchange’s Growth Enterprise Market (GEM; 創業板) board to accommodate early-stage and unprofitable tech firms with clear breakthrough potential (Economic Reference News, May 23). Insurance regulators have expanded exposure caps to single VC funds and now allow equity investments in unlisted innovation firms aligned with insurers’ core business. The PBOC is scaling its toolkit for risk-sharing, guarantees, and interest subsidies tailored to technology credit—collectively signaling that innovation finance is a system-wide mandate, operationalized through capital market rules, credit architecture, and risk absorption mechanisms.
• Digital Supply Chains as Embedded Infrastructure. Finally, the Ministry of Commerce’s “Special Action Plan for Digital Supply Chains,” released jointly with seven other agencies, illustrates how innovation finance is being embedded in the industrial base itself (MOFCOM, May 26). The plan calls for full-chain digital transformation across agriculture, manufacturing, logistics, and retail, with targets to establish national digital infrastructure and cultivate 100 digital supply chain leaders by 2030. Technologies such as AI, the Internet of Things (IoT), and blockchain are being positioned as financing qualifiers and operational baselines for industrial upgrading.

These latest developments confirm the central premise of the Party’s 2025 financial strategy: innovation has been upgraded from policy priority to organizing principle of the entire economic system—from bank lending and bond issuance to supply chain modernization and credit scoring infrastructure.

Conclusion

The pace and precision of the Beijing’s financial mobilization suggest this is the foundation of a new operating model—one that fuses capital control with strategic innovation as a core economic function.

In the months ahead, expect expansion of innovation bond issuance, pilot reforms in state-owned venture capital, and broader efforts to channel pension and insurance funds into deep-tech sectors. Reforms to IPO channels and equity-linked financing tools will likely accelerate. Recent speeches by senior financial officials—including Li Yunze (李云泽), Zhu Hexin, and Wu Qing (吴清)—underscore how Beijing aims to steer domestic and foreign capital into strategic tech sectors under Party control, using “patient capital” (耐心资本) new financial products, and risk firewalls. As part of this approach, Shanghai is now positioned as the core testbed for this controlled capital system alongside other emerging hubs (NFRA, June 18; PBOC, June 18; CSRC, June 18).The upcoming Fourth Plenum and the drafting of the 15th Five-Year Plan will reveal whether these instruments remain tactical or are codified as enduring pillars of Party-state economic governance (China Brief, May 20).

There are reasons for caution. The same features that give this model its strategic cohesion may also expose it to new forms of stress. A financial system designed to serve national innovation goals depends on long time horizons, administrative capital allocation, and top-down political guidance, all of which carry risks. Credit misallocation, delayed returns, and pressure on regional banks to deliver results may intensify as capital is absorbed by unproven sectors.

Market signals are now shaped more by Party metrics than by price. If innovation quality lags, signs of misallocation will surface: weaker productivity, underperformance in flagship sectors, or political purges targeting under-delivering cadres and fund managers. If innovation fails to deliver real competitive advantage, the very tools meant to secure tech sovereignty could become liabilities—exposing the limits of Beijing’s “command innovation” model in an increasingly competitive geotechnological race.