China eyes tapping capital market to fund greater productivity

This photo taken on May 22, 2024 shows a dark factory of Baosteel in east China's Shanghai. (Xinhua/Gong Bing)

BEIJING, May 30 (Xinhua) -- As innovation becomes ever more crucial to China's high-quality development, the country's securities regulator has voiced stronger support for new quality productive forces by facilitating their access to financing.

In a move to foster strategic emerging industries and technological innovation, "new quality productive forces" has developed into a buzz phrase in the country's policymaking to denote advanced productivity through revolutionary technology breakthroughs, innovative allocation of production factors and deepened industrial upgrading.

STRONGER POLICY SUPPORT

The latest move came last week, when an official of the country's securities watchdog elaborated on the policy support for the development of new quality productive forces at a financial forum held in Beijing, pledging to prioritize financing firms that are breaking through foreign stranglehold in core technologies.

Efforts will be made to further improve the multi-tiered capital market system, and create synergies among the equity, bond and futures markets to reinforce the new quality productive forces, said Zhou Xiaozhou, an official with the China Securities Regulatory Commission.

"The capital market has a natural advantage in sharing risks of innovation, mobilizing capital for innovation, and optimizing the allocation of innovation resources," said Zhou. "Hence, it has great potential to serve the development of new quality productive forces."

Zhou's remarks came in the wake of an array of measures that were unveiled by the commission on April 19, which aimed to drive more investment to tech firms through initial public offerings (IPOs), mergers and acquisitions (M&As), bond issuance and private equity investment.

The commission has proposed, for instance, a "green channel" to finance tech firms who are striving to break foreign stranglehold in key technologies, and encouraged state-backed as well as market institutions to provide credit enhancement for private sci-tech firms in their issuance of corporate bonds.

Amid the country's efforts to boost liquidity for sci-tech firms, a relending program worth 500 billion yuan (about 70 billion U.S. dollars) was established in early April by the central bank, to support sci-tech innovation, technical transformation and equipment renewal.

Analysts believe such moves, focusing on providing innovative firms with better access to diversified financing alternatives, are crucial to invigorating China's high-quality growth.

Over recent years, strategic emerging industries have received growing support from direct financing in the capital market.

As of May 23, the amount of funds raised by the IPOs on three bourses primarily serving innovation-oriented firms -- China's Nasdaq-style sci-tech innovation board, the tech-heavy ChiNext, and the Beijing Stock Exchange (BSE) -- accounted for 55.49 percent of China's total IPO funds raised in its A-share market.

Given the large research and development (R&D) investment, high risks and strong dependence on talents as inherent nature to innovative firms, the capital market and stock exchanges can play an irreplaceable role in guiding resources toward sci-tech innovation, by solving their capital supply, price discovery and talent incentive mechanism, said BSE General Manager Sui Qiang.

PATIENT CAPITAL VALUED

At a recent high-level meeting, China's policymakers highlighted the need to develop patient capital, a term with rare occurrence in such meetings, which is used to describe long-term investment eyeing sustainable growth.

Efforts will be made to bolster new quality productive forces and emerging industries, while actively developing venture capital and patient capital, according to the meeting of the Political Bureau of the Communist Party of China Central Committee on April 30.

Long-term funding is vital for developing new quality productive forces, as innovative activities are generally risky and entail substantial R&D investment, analysts say, suggesting that expanding patient capital supply will effectively boost the country's productivity via cultivating more globally competitive frontier firms.

Simultaneously, private equity and venture capital funds are also enhancing support for China's innovation drive. Since the registration-based IPO system was adopted, nearly 90 percent of firms listed on the sci-tech innovation board and 60 percent of firms listed on the ChiNext board have received support from private equity funds.

Fueled by effective investment, the country has seen accelerated progress in developing new quality productive forces and embracing cutting-edge technologies.

The high-tech manufacturing sector registered growth of 7.5 percent in the first quarter of this year, accelerating by 2.6 percentage points from the fourth quarter of 2023, while investment in high-tech industries has expanded 11.4 percent from the previous year. In particular, investment in high-tech manufacturing expanded by 10.8 percent.

During the same period, the production of smart and green products such as 3D printing equipment, service robots and new energy vehicles increased by 40.6 percent, 26.7 percent and 29.2 percent year on year, respectively.

Looking ahead, Sui called for further optimizing institutional arrangements, including public offering, M&A as well as equity incentives, highlighting the need to raise patient capital and launch exchange-traded funds to better serve high-quality enterprises.