Focusing on “newness”, China’s financial industry helps empower new productive forces

On October 27th, under the backdrop of the 2024 Financial Street Forum and the 2024 SWIFT International Banking Operations Conference held in Beijing, a significant theme emerged: the role of finance in fostering new productive capabilities.

The development of new productive capabilities is seen as an essential requirement for promoting high-quality growth. Finance is often referred to as the lifeblood of the national economy and a crucial component of a country’s core competitiveness. Experts believe it serves as both a booster and a catalyst in the cultivation of these new productive capabilities.

As efforts to establish a robust financial sector deepen, enhancing the “five major articles” of finance has become increasingly urgent and necessary. This includes aligning initiatives to boost quality and empower development in the realm of new productive capabilities.

During the Financial Street Forum, Li Yunze, head of the National Financial Supervisory Administration, emphasized the importance of nurturing patient capital to support the growth of new productive capabilities. He called for increased involvement from financial asset investment companies in backing technological innovation. Notably, a new batch of 18 pilot cities has signed agreements for a fund exceeding 250 billion yuan. Additionally, there’s support for qualified insurance institutions to establish private equity investment funds, which can help stabilize the market.

Zhang Jian, Vice Chairman and General Manager of Shenwan Hongyuan Securities Co., pointed out that securities firms should focus on better serving high-quality growth in the real economy. He highlighted the need for capital markets to develop service models that align with new productive capabilities, offering high-quality investment banking services that support companies through their entire lifecycle and aid in optimizing and upgrading industrial structures.

Yin Zhongli, a researcher at the Chinese Academy of Social Sciences, argues that when credit and fiscal funding fall short in supporting disruptive innovations, venture capital and equity investment can be crucial in helping small and medium-sized enterprises achieve technological transformation. He describes the capital market as a cradle for disruptive innovation, with a unique risk diversification mechanism that can effectively mitigate the risks and costs associated with the development of new technologies.

Furthermore, the capital market can encourage innovative companies to invest more in R&D and drive industrial upgrades through measures like valuation pricing, talent incentives, and mergers and acquisitions.

While the capital market plays its part, the banking sector also has a significant role to play. According to reports, the Agricultural Bank of China’s Shanghai branch has been tailoring its products to meet the asset characteristics of technology-driven companies. Innovations like batch loans, agricultural science loans, and technology innovation loans are being adapted to respond flexibly to enterprises’ specific needs, facilitating a smoother transition of intellectual property into tangible assets and providing diverse financial services for tech firms pursuing their goals.

Among these initiatives, the “Agricultural Science Loan” specifically supports new sectors like biological breeding and manufacturing, as well as greenhouse operations. It aims to address the unique financing challenges faced by agricultural tech companies in Shanghai, such as small loan amounts and short cycles, while maintaining attractive features like low entry barriers, high credit limits, and favorable collateral options.

Insurance also plays a foundational role in modern market economies by empowering industries through risk reduction and capital accumulation. Bu Fanwei, Deputy Director of the Property Insurance Supervision Division at the National Financial Supervisory Administration, stated that China’s insurance sector has made noticeable advances in supporting high-quality industrial development in recent years, focusing on technological innovation, green transitions, and the development of small and micro enterprises.

Official data reveals that from January to August this year, the premium for technology-related insurance in China reached 38.8 billion yuan, providing risk protection worth over 7 trillion yuan for technology R&D and its application.

Liu Yong, Director of the Internet Finance Research Institute of Zhongguancun, emphasized the importance of financial services innovating to match the pace of the digital economy. He advocated for increased support for tech innovation firms, especially among small and medium enterprises, suggesting that the financial sector must integrate deeply with the entire industrial ecosystem and develop tailored financial service innovations that align with the characteristics of local economies.