China's easing of the sci-tech innovation bond framework has provided a policy-anchored financing option for local government financing vehicles (LGFVs) and other public policy entities, Fitch Ratings said.
Qualified issuers can enter the market either by channeling use of proceeds mainly to science and tech activities or by applying for classification as recognized science and tech companies, Fitch said.
However, the rating agency believes the bonds have not yet anchored sectoral transformation, with a small number of LGFVs qualifying so far.
Only 101 LGFVs and other public policy entities had sci-tech innovation bond issuances between May and December 2025, comprising less than 3% of the 4,000 entities tracked by Fitch.
Issuers in more developed regions accounted for a majority of the issuance, Fitch said.
The entities issued about 136 billion yuan of the bonds, although proceeds were channeled mainly for legacy science and tech investment refinancing and debt repayment instead of new investment financing, Fitch aid.
The rating agency expects an increase in refinancing risk if projects supported by these bonds do not yield ample returns.