BOC to speed up pro­gram to fi­nance startup firms

Bank says in­vest­ment and loan link­age mech­a­nism is cru­cial to in­dus­trial in­no­va­tion

China Daily (Hong Kong) - - BUSINESS - By JIANG XUEQING jiangx­ue­qing@ chi­nadaily.com.cn

The Bank of China Ltd has pledged to ac­cel­er­ate the de­vel­op­ment of its key in­vest­ment and loan link­age mech­a­nism — by work­ing with the ad­min­is­tra­tive com­mit­tees of five na­tional in­no­va­tion zones to build up its client base and risk com­pen­sa­tion and in­for­ma­tion-shar­ing sys­tems.

The fourth big­gest com­mer­cial lender by as­sets in China said it signed strate­gic co­op­er­a­tion agree­ments with the com­mit­tees on Fri­day and also inked ac­cords on of­fer­ing fi­nanc­ing ser­vices through the in­vest­ment and loan link­age mech­a­nism to 12 tech­nol­ogy and in­no­va­tive com­pa­nies.

Cur­rently, it is wait­ing for reg­u­la­tory ap­proval to set up a sub­sidiary spe­cial­iz­ing in eq­uity in­vest­ments un­der the mech­a­nism.

The in­vest­ment and loan link­age mech­a­nism was ini­ti­ated by the State Coun­cil. It aims to en­cour­age banks to pro­vide sus­tain­able fi­nance to tech­nol­ogy com­pa­nies and in­no­va­tive star­tups by lend­ing to them and in the mean time al­low­ing qual­i­fied sub­sidiaries of the banks to make eq­uity in­vest­ments in them.

The mech­a­nism is ex­pected to help banks cover credit risks and se­cure re­turns on their in­vest­ment.

On April 21, the Chi­nese gov­ern­ment au­tho­rized 10 banks, in­clud­ing the Bank of China, to carry out a trial pro­gram of the mech­a­nism in five na­tional in­no­va­tion de­mon­stra­tion zones in Bei­jing, Shang­hai, Tian­jin, Hubei prov­ince and Shaanxi prov­ince.

“China is grasp­ing the most cru­cial part of its in­no­va­tion by car­ry­ing out a trial pro­gram on the in­vest­ment and loan link­age mech­a­nism,” said Liu Qiang, ex­ec­u­tive vice-pres­i­dent of the BOC.

Liu said it would be a new driver for sci­ence and tech­nol­ogy de­vel­op­ment.

The Chi­nese eco­nomic struc­tural re­form’s fo­cus was on re­duc­ing ca­pac­ity, de­stock­ing and delever­ag­ing, he said. Com­bin­ing eq­uity in­vest­ment and their credit busi­ness, to serve tech­nol­ogy com­pa­nies and in­no­va­tive star­tups, would help com­mer­cial banks form dif­fer­ent de­vel­op­ment strate­gies to serve clients, Liu added.

Apart from mak­ing it less dif­fi­cult for com­pa­nies to find sources of fund­ing, the in­vest­ment and loan link­age mech­a­nism will help the bank­ing sec­tor break the tra­di­tional busi­ness model, which re­lies heav­ily on lend­ing and net in­ter­est mar­gins, by ex­plor­ing busi­ness trans­for­ma­tion, said Guo Hong, direc­tor of the ad­min­is­tra­tive com­mit­tee of Zhong­guan­cun Sci­ence Park.

“The new busi­ness model re­quires bank­ing in­sti­tu­tions to look at a com­pany with the vi­sion of an in­vestor and the key is to as­sess the room for growth and the in­vest­ment value of the com­pany ac­cu­rately,” he said.

Guo said that to achieve this goal, banks needed to build a team of ex­pert staff with a deep un­der­stand­ing of both credit and in­vest­ment.

“They also need to make in­no­va­tions on per­for­mance eval­u­a­tion and or­ga­ni­za­tional man­age­ment ac­cord­ingly. Dur­ing the prac­tice, banks may have to ad­just their level of risk tol­er­ance,” he added.

“All this needs to be ex­plored and im­proved con­tin­u­ously dur­ing the trial pro­gram.”

Zhang Weix­ing, an of­fi­cial from the Min­istry of Sci­ence and Tech­nol­ogy, said the min­istry was do­ing re­search into set­ting up stan­dards for small and medium-sized tech­nol­ogy com­pa­nies.

It was also pro­vid­ing guid­ance for lo­cal govern­ments to build their own data­base of tech­nol­ogy com­pa­nies and es­tab­lish risk com­pen­sa­tion and pro­fes­sional con­sult­ing sys­tems, to help banks lower in­vest­ment and credit risks.

All this needs to be ex­plored and im­proved con­tin­u­ously dur­ing the trial pro­gram.” Guo Hong, direc­tor of the ad­min­is­tra­tive com­mit­tee of Zhong­guan­cun Sci­ence Park

PRO­VIDED TO CHINA DAILY

The stand of Bank of China at a fi­nan­cial in­dus­try expo in Bei­jing.

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