China's "patient capital" and its transformative shifts across three tiers
China's "patient capital" has instigated significant paradigm shifts across micro, meso, and macro levels in technological innovation, showcasing its importance in advancing global progress.
TroibNews 
Editor's note: The article, authored by Song Xueyin, deputy director of the Future Regional Development Laboratory and researcher at the Research Center for Socialism with Chinese Characteristics at Zhejiang University, presents the author's perspectives and does not necessarily reflect the views of CN. It has been translated from Chinese and edited for brevity and clarity.
China's "patient capital" has initiated significant changes in technological innovation across various levels—micro, meso, and macro—underscoring its role in advancing global progress.
On a micro level, patient capital has transformed the decision-making processes of tech companies regarding innovation, promoting a more inclusive entrepreneurial spirit that embraces disruptive ideas. This approach is essential to understanding how China's patient capital effectively drives innovation. Unlike traditional equity investments, which typically pressure tech startups to reach an IPO within three to five years and focus on immediate financial outcomes, patient capital allows for a longer-term perspective. This alleviation of immediate financial pressure enables founders and management to engage in the rational and thoughtful processes crucial for breakthrough innovations, which inherently involve high risks and uncertainties.
Presently, patient capital in China enables companies to postpone profitability evaluations and shifts focus away from short-term financial goals. For instance, a biopharmaceutical fund has extended its profitability timeline to eight years, while a Beijing AI fund has indicated that "there is no exit deadline." These strategies have shown significant effectiveness in promoting innovation, as highlighted by recent data from the Shanghai Stock Exchange Science and Technology Innovation Board, which shows a rise in R&D investment from an industry average of 15 percent to 35 percent.
At the meso level, the dynamics between upstream and downstream sectors involved in innovation are evolving, establishing a cohesive multi-chain framework that integrates technology, industry, and talent. This creates a continuous innovation loop that seamlessly connects various aspects of the ecosystem. Under the guidance of the Chinese government, patient capital not only alleviates capital supply constraints but also addresses downstream challenges associated with market development and scenario breakthroughs. A notable example is a new materials fund in the Yangtze River Delta, which partnered with university laboratories to expedite the application of graphene-based films for heat dissipation from lab research to the automotive sector within three years, thereby bridging a significant technological gap in China and generating over 20 billion yuan for the industrial chain.
On a macro scale, patient capital has redefined the interaction between government and market dynamics in innovation, creating a modern framework for collaborative innovation where the government takes an enabling role while the market plays a crucial part in decision-making. In contrast to Europe and the US, where innovation heavily relies on the private venture capital market with its often short-term focus and a prevalent "patient capital deficit," China has integrated government funds into the private capital landscape, facilitating comprehensive evaluations of original innovations and fostering a greater tolerance for individual project failures. This strategy has led to a robust risk-sharing framework for innovation involving both government and private capital. Currently, several Chinese regions are launching "risk compensation funds," where government contributions cover 30 percent of early investment losses, thus supporting company sustainability. By 2024, this policy has reportedly increased private investment interest in key technology projects by 40 percent. For example, Shenzhen has successfully attracted over 20 billion yuan in social capital to its semiconductor equipment sector through this initiative.
Thomas Evans for TROIB News
China's "patient capital" has initiated significant changes in technological innovation across various levels—micro, meso, and macro—underscoring its role in advancing global progress.
On a micro level, patient capital has transformed the decision-making processes of tech companies regarding innovation, promoting a more inclusive entrepreneurial spirit that embraces disruptive ideas. This approach is essential to understanding how China's patient capital effectively drives innovation. Unlike traditional equity investments, which typically pressure tech startups to reach an IPO within three to five years and focus on immediate financial outcomes, patient capital allows for a longer-term perspective. This alleviation of immediate financial pressure enables founders and management to engage in the rational and thoughtful processes crucial for breakthrough innovations, which inherently involve high risks and uncertainties.
Presently, patient capital in China enables companies to postpone profitability evaluations and shifts focus away from short-term financial goals. For instance, a biopharmaceutical fund has extended its profitability timeline to eight years, while a Beijing AI fund has indicated that "there is no exit deadline." These strategies have shown significant effectiveness in promoting innovation, as highlighted by recent data from the Shanghai Stock Exchange Science and Technology Innovation Board, which shows a rise in R&D investment from an industry average of 15 percent to 35 percent.
At the meso level, the dynamics between upstream and downstream sectors involved in innovation are evolving, establishing a cohesive multi-chain framework that integrates technology, industry, and talent. This creates a continuous innovation loop that seamlessly connects various aspects of the ecosystem. Under the guidance of the Chinese government, patient capital not only alleviates capital supply constraints but also addresses downstream challenges associated with market development and scenario breakthroughs. A notable example is a new materials fund in the Yangtze River Delta, which partnered with university laboratories to expedite the application of graphene-based films for heat dissipation from lab research to the automotive sector within three years, thereby bridging a significant technological gap in China and generating over 20 billion yuan for the industrial chain.
On a macro scale, patient capital has redefined the interaction between government and market dynamics in innovation, creating a modern framework for collaborative innovation where the government takes an enabling role while the market plays a crucial part in decision-making. In contrast to Europe and the US, where innovation heavily relies on the private venture capital market with its often short-term focus and a prevalent "patient capital deficit," China has integrated government funds into the private capital landscape, facilitating comprehensive evaluations of original innovations and fostering a greater tolerance for individual project failures. This strategy has led to a robust risk-sharing framework for innovation involving both government and private capital. Currently, several Chinese regions are launching "risk compensation funds," where government contributions cover 30 percent of early investment losses, thus supporting company sustainability. By 2024, this policy has reportedly increased private investment interest in key technology projects by 40 percent. For example, Shenzhen has successfully attracted over 20 billion yuan in social capital to its semiconductor equipment sector through this initiative.
Thomas Evans for TROIB News
