Can fiscal and financial synergy promote the development of the recycled water industry? — Based on the dynamic analysis of evolutionary games and empirical research using staggered DID

China’s recycled water industry faces a financing dilemma: private capital is deterred by high risks, yet fiscal funds alone are insufficient to bridge the gap. As a fiscal-financial policy, the “Water-Saving Loan” launched in 22 provinces since 2019 attempts to resolve this deadlock. This paper investigates whether and how such synergy works. We develop a four-party evolutionary game model incorporating banks as strategic actors, revealing a two-stage transmission chain: government subsidies first reshape enterprises’ financing expectations, which then signal project quality to banks, reducing their risk perception and triggering credit supply. Simulation analysis shows this chain operates only when subsidy rates exceed a calculable threshold. Using staggered DID on provincial panel data, we find that the policy significantly increases recycled water utilization, driven by expanded green credit and infrastructure investment. Heterogeneity analysis indicates that the effect of the water-saving loan policy is significant only in regions with high financial development levels and high urbanization rates. These findings suggest that fiscal-financial tools can amplify but cannot substitute basic infrastructure investment, and that regionally differentiated subsidy thresholds are essential for policy design.