Boosting Chinese sci-tech innovation
Policy banks can play a greater role in supporting the industries of strategic importance
China’s central leadership has emphasized the importance of deepening the capital market reform, including further improving its basic system, in order to make the capital market’s functioning more efficient and create more space for the development of all types of capital.
In this regard, policy banks, which in essence are part of national capital banks, should play a greater role in the country’s major scientific and technological innovation projects, reduce enterprises’ operation and financial risks, and build a risk-sharing and compensation mechanism through top-level design.
While market-led applied technology research and development spearheaded by enterprises are becoming an important source of new, advanced technologies in China, major State-led core technologies are developing at a faster pace and becoming a potentially important source of new technologies. Since economic modernization is a long-drawn process, technology innovation will remain a core activity in the country.
Besides, the United States has become increasingly hostile toward China, imposing more and more sanctions on China’s high-tech enterprises. By blocking the supply of core high-tech products such as semiconductors, high-end machine tools and lithography machines, and decoupling its science- and technology-related industrial chains from China’s, the US has made clear its aim of curbing China’s economic development.
This has made it even more urgent for China to achieve core technological breakthroughs, for they are critical to safeguarding economic security, upgrading industries, transforming China into an innovationdriven country.
China has been promoting the high-quality development of enterprises as an important part of its national development policy.
As a bridge between the government and the market, and with a unique approach to improve the market, policy banks should provide stable and efficient financing support for the country’s medium- and long-term strategic planning in order to accelerate the country’s economic development. For that, however, the authorities have to elevate policy banks to the level of national strategic importance.
And policy banks, on their part, need to facilitate innovations in the major fields of science and technology.
Different from the innovation projects of enterprises, the country’s major science-technology innovation projects usually require huge investments, an uncertain, mostly long period of time to profitably apply innovations and R&D results to industries, and carry high operational risks, which ordinary enterprises cannot afford.
Even for listed companies, under the current accounting standards, investments in scientific and technological development will reduce their net profit and could even lead to long-term losses, thus having a negative impact on their credit rating and stock market valuation.
Therefore, the State should provide greater support for emerging industries of strategic importance by issuing favorable industrial finance policies. Although high-tech exports of foreign companies based in China are a major source of the country’s high-tech trade surplus, the surplus does not benefit domestic enterprises. So China needs to change the way it treats foreign capital, based on whether they can promote and strengthen high-tech cooperation and benefit domestic enterprises.
China should also strengthen intellectual property rights protection and build a perfect innovationpromotion system, enhancing the policy banks’ financial support to emerging industries of strategic importance, so as to promote the development of those industries and gradually expand their role in hightech trade.
When it comes to deepening cooperation between the government and financial institutions, the policy banks, with the help of the government, should work out special support policies for the development of enterprises.
For this, policy banks should formulate support policies to help develop industrial finance, and include a special project for industrial finance development in their investment budget, so as to create a favorable policy environment for cooperation between local governments and financial institutions.