(Yicai Global) July 26 -- Two of China’s policy banks have made the first moves to use new special funds to expand state investment in infrastructure, thereby helping the country’s economic recovery.

China Development Bank said on July 22 that its infrastructure fund had made a CNY1.3 billion (USD192.5 million) investment to support the building of the Shanxi section of the Hohhot-Beihai Expressway and the Anyang Yudongbei Airport in Henan. The day before, Agricultural Development Bank of China announced a CNY500 million (USD73.95 million) infrastructure fund to back construction of a hydropower plant in Chongqing.

The two investments are the first to use special funds the People's Bank of China unveiled on July. The PBOC said it would support China Development Bank and Agricultural Development Bank to set up funds worth a total of CNY30 billion to supplement capital for major infrastructure projects.

Such projects are generally financed by local government special bonds, which can be used to provide up to 25 percent of a project’s funding, Li Peijia, a senior researcher at the Bank of China Research Institute, told Yicai Global.

But when local government revenues decline, infrastructure projects could suffer from a lack of funding, so policy bank investment is needed, he added.

Policy banks will contribute no more than 10 percent of each project’s finance, Zou Lan, director of the PBOC’s monetary policy department, has said. When the capital is in place, commercial bank loans and social investment will follow up to back the projects, thereby stabilizing the economy.

The current round of policy bank support could theoretically drive at least CNY1.2 trillion (USD180 billion) of infrastructure financing, according to Zhang Jiqiang, deputy director of Huatai Securities Research Institute. That is the same as raising the social financing growth rate by about 0.4 point this year, while also increasing the share of medium- and long-term loans and improving the credit structure.

Editors: Dou Shicong, Tom Litting