So, China has a new five-year plan. You might think, "Another one?" But this isn't just another roadmap. The 15th Five-Year Plan is being pitched as the critical starting gun for achieving "basic modernization" by 2035. And this time, the financial system isn't just in the background; it's being shoved to the front lines.

The backdrop is familiar: rising geopolitical tensions, a tech race that feels like the Cold War but with semiconductors, and a domestic economy that's, well, not exactly sprinting. Policy priorities are subtly shifting from just stabilizing growth to actively reshaping how the economy develops. Stock markets in Shanghai, Shenzhen, and Hong Kong have bounced back over the last year, with authorities making supportive noises. But investors are now laser-focused on a new phrase in the policy documents: "financial powerhouse."

That term made its debut in the "Recommendations for the 15th Five-Year Plan" released late last year. It wasn't alone. The document also called for increasing the share of direct financing (think stocks and bonds, not bank loans), strengthening the multi-tier capital market system, and developing tech and digital finance. This echoes President Xi Jinping's longstanding mantra that finance must "serve the real economy" and not drift off into unproductive speculation. The signal here is a move away from a system of reactive, short-term policy tweaks toward something bigger: a wholesale restructuring of the financial system itself.

Now, "financial support for the real economy" is an old tune in China. It's been stressed since at least the Central Financial Work Conference in 2017, often through tools like cutting reserve requirements or targeted lending programs. But the core structure? It hasn't really budged.

Tian Xuan, vice dean of Tsinghua University's PBC School of Finance, lays out the numbers. As of June 2025, direct financing accounted for only about 31.1% of China's total social financing. Meanwhile, bank assets still made up more than 90% of the financial system's total assets. In some regions, the market-based fundraising share of government-guided funds is even below 20%.

His take? This shows China is still a highly credit-driven system. Banks are calling the shots. The capacity for markets to actually price risk and fund innovation—the messy, long-term, potentially-lose-everything kind of innovation—is still pretty limited.

The Power of Markets (Finally)

But the capital needs of the economy are changing. As AI, chips, advanced equipment, and new materials become national priorities, the old playbook might not cut it. The plan's recommendations are littered with references to "technology," "innovation," and "new quality productive forces," alongside a new "AI+" initiative. This puts technological upgrading at the absolute core of national strategy.

For finance, the job description is changing. It's no longer just about supplying funds. It's about building capital mechanisms for long-cycle innovation. That means market mechanisms and regulatory frameworks are going to have to do more heavy lifting, rather than just following administrative guidance from above.

So, What Changes Are Coming?

First, with boosting direct financing now an explicit goal, new capital is more likely to flow into the real economy through the equity and bond markets. This should, in theory, improve the environment for equity financing and let capital markets play a more central role in the economic transformation.

Next up: a shift in how companies get valued. As concepts like "patient capital" and improved venture investment and M&A mechanisms hit the policy agenda, markets might start placing greater emphasis on technological barriers and scaling capabilities. Short-term profits may no longer be the sole benchmark. Instead, a company's industry positioning and how well it aligns with national policy priorities could become bigger positive factors. These changes might not show up in share prices tomorrow, but they could shape where capital flows over the medium and long term.

At the same time, things like refinancing and secondary share offerings could gradually become more normal. Equity markets are being tasked with funding industrial upgrading. So, rights issues and private placements with clearly defined investment purposes are expected to get more regulatory support.

For investors, this could mean getting comfortable with a model where companies grow while they raise capital. The evaluation might shift from short-term earnings per share to whether the fundraising actually aligns with broader industry priorities.

On the bond side, expect more demand from tech firms for instruments like convertible bonds. Sectors tied to "new quality productive forces" might get access to cheaper financing. Credit pricing is likely to become more linked to industry characteristics, rather than just looking at financial leverage.

Here's something to watch: as tech moves to center stage, financial markets in Shanghai, Shenzhen, and Hong Kong are likely to become more accommodating toward hard-tech companies. We're talking about firms that might not be profitable yet but have solid tech moats and real commercialization potential. Listing standards might not be broadly loosened, but approval signals could become much clearer for sectors like AI, advanced equipment, semiconductor tools, and new materials.

Don't Forget the Regulators

The plan also calls for "comprehensively strengthening financial regulation." Translation: as capital markets expand, the rules around disclosure, how companies use the money they raise, and internal controls are likely to tighten right alongside. Going forward, how a listed company uses its capital may matter more than whether it can raise it. This is aimed at curbing past practices where some firms strayed from their core businesses or let funds sit idle.

Regulators have also been clear that industrial M&A should be a key tool for making direct financing more efficient and driving structural adjustment. They want listed companies to consolidate around their core businesses. Behind this push is a simple reality: venture capital exits are tough, and financing chains for tech firms are often fractured.

In this context, developing "patient capital" and improving M&A mechanisms are two sides of the same coin. One supplies the long-term funding; the other opens the exit doors. If supporting measures actually get implemented, capital could move beyond just venture investment and IPOs to form a fuller cycle: venture funding, public listing, expansion through refinancing, and finally, exit via consolidation.

Still, let's be real. Becoming a "financial powerhouse" isn't a magic cure. Investment, consumption, and exports are still under pressure. As IMF Managing Director Kristalina Georgieva has noted, China needs to accelerate its shift toward domestic demand and consumption. That underscores a crucial point: financial reform has to be coordinated with industrial and demand-side policies. It can't work in a vacuum.

Stepping back, this drive to become a financial powerhouse is really a long-term effort to realign the money pipes with where China wants its industries to go. And in that process, capital markets are being asked to take on a much bigger role. Whether they're ready for the job is the trillion-yuan question.