China's 'patient capital' and its paradigm shifts across three distinct levels drive technological innovation

Editor's note: The article, written by Song Xueyin, deputy director of the Future Regional Development Laboratory and researcher at the Research Center for Socialism with Chinese Characteristics, Zhejiang University, reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity. 

China's "patient capital" has brought about paradigm shifts at the micro, meso, and macro levels in technological innovation, demonstrating its value in leading global progress.

At the micro level, it has reshaped tech companies' logic in making innovation-related decisions, fostering an entrepreneurial spirit that is more inclusive of disruptive innovation. This is the fundamental mechanism through which China's patient capital exerts its powerful influence in driving innovation. Traditional equity investment typically requires tech startups to achieve an initial public offering (IPO) within three to five years, compelling founders and management to focus on short-term financial metrics. This pressure makes it difficult for them to calm down and think rationally, which fundamentally conflicts with breakthrough innovation that is characterized by high risks, long cycles, and uncertainties. 

Currently, China's patient capital allows companies to delay profitability assessments and withdraw from long-cycle assessments. For example, a biopharmaceutical fund has extended its profitability assessments to the eighth year, and a Beijing AI fund has explicitly stated that "there is no exit deadline." The above measures have proven highly effective in driving innovation. According to the latest data from Shanghai Stock Exchange Science and Technology Innovation Board companies, the proportion of R&D investment has increased from the industry average of 15 percent to 35 percent.

At the meso level, relationships between upstream and downstream sectors in innovation processes have been reshaped, forming an integrated, multi-chain pathway that connects the technology chain, industry chain, and talent chain, and creating a seamless innovation loop that links technology, industry, and application scenarios. Guided by the Chinese government, patient capital not only addresses supply-side constraints on capital but also overcomes downstream challenges in scenario breakthroughs and market cultivation. It effectively provides a comprehensive solution for the innovation ecosystem. For instance, a new materials fund in the Yangtze River Delta region, in collaboration with university laboratories, advanced the technology of graphene-based films for heat dissipation from lab research to automobile applications within three years, filling a gap in China and driving the industrial chain's output value beyond 20 billion yuan ($2.76 billion).

At the macro level, patient capital has reshaped the relationship between the government and the market in the field of innovation, establishing a new-generation framework for innovation collaboration where the government plays an empowering role and the market plays a decisive role. Europe and the US have been overly reliant on the private venture capital market's single incentive mechanism for innovation, which often exhibits short-termism, narrow thinking, and a "patient capital deficit." In contrast, China has channeled government funds into the private capital market and conducted holistic assessments of original innovation to increase tolerance for individual project failures. This has led to an effective risk-sharing mechanism for innovation between the government and private capital. Currently, several regions in China are piloting "risk compensation funds," where government funding covers 30 percent of early investment losses to help companies survive. According to 2024 data, this policy has increased the willingness of social capital to invest in key and core technology projects by 40 percent. For example, Shenzhen has used this mechanism to attract over 20 billion yuan (equivalent to $2.76 billion) of social capital to the semiconductor equipment sector.

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