More effective science and technology funding needed

The screen shows Shanghai stock market data for May. China Daily

Experts said China is expected to improve the design and implementation of policy measures to promote financing for innovation-oriented science and technology enterprises, especially through non-loan financing and patient capital, to speed up the development of new high-quality productive forces.

The country is facing containment from some countries in the high-tech sector and this is crucial to strengthening the country's position in global industrial, supply and value chains, they said.

Zhang Xiaohui, vice president of the China Finance and Banking Association, said scientific and technological innovation could significantly boost the strength of the overall economy, which will determine whether China can avoid the so-called middle-income trap and play a leading role in the development of international standards.

“By optimizing resource allocation and improving efficiency, finance can promote scientific and technological innovation and the development of new, high-quality productive forces,” Zhang said.

“Currently, there is a certain degree of mismatch between financial services and the financing needs of China's science, technology and innovation sector. Although a large amount of capital has been poured in, financing channels are still limited, and most of them are indirect channels such as loans.”

Moreover, the country's capital market needs to be improved to help a large number of high-quality science and technology innovative companies go public, she said.

Against this backdrop, Zhang said, China needs to continue optimizing its financial system for scientific and technological innovation, strengthen the financial ecosystem, and develop customized financial services based on different stages of the scientific and technological innovation life cycle.

China's leadership has repeatedly stressed the importance of cultivating new, high-quality productive forces and enhancing scientific and technological independence.

On June 19, the China Securities Regulatory Commission (China Securities Regulatory Commission) announced eight new measures to further reform the Nasdaq-style Science and Technology Innovation Board (STAR) market of the Shanghai Stock Exchange, including prioritizing the listing of companies that have made breakthroughs in new industries, new business models and new technologies.

CSRC also pledged to enhance institutional inclusiveness and encourage high-quality technology companies that have not yet made a profit to list on the STAR Market, as companies with new, high-quality production capabilities often require large-scale and sustained investment while facing uncertainties in research and development and commercial applications.

The State Financial Regulatory Administration also issued a notice earlier this year urging banks and insurance companies to make greater efforts to improve financial services for science and technology companies.

The notice encouraged banks and insurance companies to increase credit provision to science and technology start-ups, providing risks are adequately managed, set up branches in areas with a high concentration of science and technology resources, and expand support for intellectual property-backed loans.

Additionally, the tolerance for bad loans for small and medium-sized technology companies can also be relaxed by up to three percentage points compared to other loans, the circular said.

Zhang said that the direct financing channel can best meet the needs of scientific and technological innovation-based enterprises and projects, and equity investment funds should be the main source of financing for them.

“To promote direct financing, the country should strive to build a multi-layered capital market and improve the operating mechanisms of both the Growth Enterprise Market and the STAR Market,” she said.

In terms of indirect finance, Zhang said lenders need to further strengthen their support for scientific and technological innovation by improving mechanism design, support systems and risk compensation.

Banks should develop institutional mechanisms tailored to the financing needs of the science, technology and innovation sector, and step up efforts to build more financial intermediaries that can help banks better collect information on science, technology and innovation-based enterprises, Zhang said.

In addition, many science and technology innovation-based enterprises tend to be asset-poor and risky. Banks bear more risk when lending to such enterprises than to large existing clients or individuals. Therefore, a more complete risk compensation mechanism is urgently needed to increase banks' enthusiasm to support science and technology innovation, she added.

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