Funding the Future: Challenges and Solutions
China regards finance as essential to the economy and considers technology as its main engine of growth. "Technology finance," encompassing various financial tools, policies, and services that facilitate technological research and development, plays a crucial role in this context.
TroibNews 
Editor's note: Lin Yang is a senior manager at a prominent commercial bank in China. The article represents his own views and not necessarily those of CN.
China considers finance to be the lifeblood and sees technology as the key driver of its economy. "Technology finance," which encompasses various financial tools, policies, and services aimed at fostering technological research and development, holds significant importance today. According to the resolutions from the third plenary session of the CPC's 20th Central Committee, there are plans to evolve a financial system dedicated to scientific and technological innovation. This initiative will enhance support for critical national science and technology programs and sci-tech SMEs. It will also refine the risk distribution mechanisms linked to the development of key technologies while introducing a policy framework for technology insurance. To meet these objectives, financial institutions are intensifying their efforts to address various challenges and bolster financial support to nurture new technologies, sectors, and markets.
1. Challenges of technology finance
Technology finance has unique aspects compared to standard financial services, presenting specific challenges.
Investing in high-tech enterprises is usually fraught with increased risk. In comparison to traditional sectors such as manufacturing, the tech industry features higher risks and a greater likelihood of bankruptcies. Yet, it's often these businesses that are most in need of capital. Despite the uncertainties, successful high-tech firms can yield enormous rewards, contrasting sharply with conventional credit endeavors. Consequently, those involved in technology finance must balance their focus on risk with a deep understanding of the potential future benefits of their investments.
Moreover, there's a mismatch in risk mitigation strategies. Unlike conventional financial services that often utilize tangible assets like real estate and production equipment for risk alleviation, high-tech firms generally possess intangible assets such as patents and software products. This discrepancy makes it challenging for these enterprises to meet traditional lending criteria, resulting in difficulties securing financial backing.
Financing the future also involves looking beyond current financial data to make decisions. For high-tech firms, traditional financial statements are not very indicative of future success. These companies often report losses and significant cash outflows, complicating assessments of their quality. Rather, factors like technological capacity, market competitiveness, and industry trends tend to provide more relevant insights.
2. China's multi-faceted solutions
In addressing these challenges, China integrates technology finance with inclusive, green, pension, and digital finance as part of its strategic financial pillars. To navigate the challenges, the country employs a holistic approach, maximizing the strengths of the market, financial institutions, and government for effective collaboration.
Initially, in the capital markets, the long-term, capital-intensive nature of technological innovation, coupled with its high risks, makes equity financing — with its "shared risks and shared returns" philosophy — a suitable fit. Currently, over 1,700 high-tech firms are listed on Chinese stock exchanges, and the asset management of venture capital funds has soared to 3 trillion yuan ($423 billion).
Traditional financial entities are also evolving, launching new services to support tech innovation. The volume of loans to high-tech enterprises continues to grow, with medium and long-term loans to high-tech manufacturing seeing an average annual increase of over 30 percent. The approval rates for SMEs in the high-tech sector have improved significantly. Additionally, streamlined procedures have been established for registering and issuing science and technology innovation bonds, with their cumulative issuance recently reaching 800 billion yuan.
Furthermore, the government plays a crucial role in fostering a conducive environment for technology finance, bolstering support for significant scientific and tech tasks, and helping small and medium-sized enterprises. It has spearheaded the development of various policies that encourage long-term investments in nascent, hard-tech ventures. These efforts include enhancing mechanisms to spread risks associated with major technological advancements, and setting up policies surrounding technology insurance. Moreover, efforts to bolster government-backed financial guarantees have led to the establishment of the National Financing Guarantee Fund which, since its initiation in 2018, has conducted re-guarantee transactions totaling 4.73 trillion yuan, benefiting around 4.2 million businesses.
Through concerted efforts in various sectors, from quantum computing and aerospace to high-speed railways and electric vehicles, China's emphasis on technology finance has significantly propelled its technological advancements. This synergy among the market, financial institutions, and government not only positions China at the cutting edge of innovation but also offers a model for others to emulate. As the country progresses in its scientific and technological endeavors, its distinctive strategy plays a crucial role in fostering innovation and promoting a sustainable future.
Sanya Singh for TROIB News
China considers finance to be the lifeblood and sees technology as the key driver of its economy. "Technology finance," which encompasses various financial tools, policies, and services aimed at fostering technological research and development, holds significant importance today. According to the resolutions from the third plenary session of the CPC's 20th Central Committee, there are plans to evolve a financial system dedicated to scientific and technological innovation. This initiative will enhance support for critical national science and technology programs and sci-tech SMEs. It will also refine the risk distribution mechanisms linked to the development of key technologies while introducing a policy framework for technology insurance. To meet these objectives, financial institutions are intensifying their efforts to address various challenges and bolster financial support to nurture new technologies, sectors, and markets.
1. Challenges of technology finance
Technology finance has unique aspects compared to standard financial services, presenting specific challenges.
Investing in high-tech enterprises is usually fraught with increased risk. In comparison to traditional sectors such as manufacturing, the tech industry features higher risks and a greater likelihood of bankruptcies. Yet, it's often these businesses that are most in need of capital. Despite the uncertainties, successful high-tech firms can yield enormous rewards, contrasting sharply with conventional credit endeavors. Consequently, those involved in technology finance must balance their focus on risk with a deep understanding of the potential future benefits of their investments.
Moreover, there's a mismatch in risk mitigation strategies. Unlike conventional financial services that often utilize tangible assets like real estate and production equipment for risk alleviation, high-tech firms generally possess intangible assets such as patents and software products. This discrepancy makes it challenging for these enterprises to meet traditional lending criteria, resulting in difficulties securing financial backing.
Financing the future also involves looking beyond current financial data to make decisions. For high-tech firms, traditional financial statements are not very indicative of future success. These companies often report losses and significant cash outflows, complicating assessments of their quality. Rather, factors like technological capacity, market competitiveness, and industry trends tend to provide more relevant insights.
2. China's multi-faceted solutions
In addressing these challenges, China integrates technology finance with inclusive, green, pension, and digital finance as part of its strategic financial pillars. To navigate the challenges, the country employs a holistic approach, maximizing the strengths of the market, financial institutions, and government for effective collaboration.
Initially, in the capital markets, the long-term, capital-intensive nature of technological innovation, coupled with its high risks, makes equity financing — with its "shared risks and shared returns" philosophy — a suitable fit. Currently, over 1,700 high-tech firms are listed on Chinese stock exchanges, and the asset management of venture capital funds has soared to 3 trillion yuan ($423 billion).
Traditional financial entities are also evolving, launching new services to support tech innovation. The volume of loans to high-tech enterprises continues to grow, with medium and long-term loans to high-tech manufacturing seeing an average annual increase of over 30 percent. The approval rates for SMEs in the high-tech sector have improved significantly. Additionally, streamlined procedures have been established for registering and issuing science and technology innovation bonds, with their cumulative issuance recently reaching 800 billion yuan.
Furthermore, the government plays a crucial role in fostering a conducive environment for technology finance, bolstering support for significant scientific and tech tasks, and helping small and medium-sized enterprises. It has spearheaded the development of various policies that encourage long-term investments in nascent, hard-tech ventures. These efforts include enhancing mechanisms to spread risks associated with major technological advancements, and setting up policies surrounding technology insurance. Moreover, efforts to bolster government-backed financial guarantees have led to the establishment of the National Financing Guarantee Fund which, since its initiation in 2018, has conducted re-guarantee transactions totaling 4.73 trillion yuan, benefiting around 4.2 million businesses.
Through concerted efforts in various sectors, from quantum computing and aerospace to high-speed railways and electric vehicles, China's emphasis on technology finance has significantly propelled its technological advancements. This synergy among the market, financial institutions, and government not only positions China at the cutting edge of innovation but also offers a model for others to emulate. As the country progresses in its scientific and technological endeavors, its distinctive strategy plays a crucial role in fostering innovation and promoting a sustainable future.
Sanya Singh for TROIB News
