Improving policy and finance for innovation and industry

Editor's note: Bruce Pang is a distinguished senior research fellow at the National Institution for Finance and Development. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

Scientific and technological innovation enterprises are vital vehicles for advancing high-quality development, shaping a new development paradigm, and building self-reliance and strength in scientific and technological innovation. They stand at the forefront of upholding science and technology as the primary productive force, talent as the primary resource, and innovation as the primary driving force. As global competition in scientific and technological innovation and real economy industries intensifies, financial support has become a key driver for countries worldwide to promote industrial upgrading and scientific and technological innovation.

After years of efforts, China has developed a multi-tiered, multi-channel, and multi-tool financing framework through policy-based financial guidance, capital market reform, and digital financial applications, providing sustained and targeted funding supply for scientific and technological enterprises and strategic emerging industries.

The practical logic and effectiveness of this system not only respond to the real demands of an innovation-driven development strategy but also offer valuable insights for other countries to improve their systems for science and technology finance.

Firstly, the government should act as a guide in science and technology finance while allowing the market mechanism to play a decisive role. By using policy tools to leverage private capital and employing strategies such as "targeted funding injections" and "equity-led debt financing", it can support major technological breakthroughs and mitigate the risks of insufficient market-based financing.

Secondly, capital market reform should proceed in tandem with industrial policies, and government-guided funds should collaborate with market-based parent funds to create multi-tiered market segments with differentiated standards, and increase the share of direct financing so as to meet the financing needs of enterprises at different stages of development.

Thirdly, fintech applications can not only improve risk-control efficiency but also serve as a core enabler of inclusive finance. They can effectively reach innovators beyond the scope of traditional finance and enhance the precision and responsiveness of fund allocation, thus serving both science and technology finance and industrial finance.

Through targeted efforts to strengthen financial support and financing services for scientific and technological innovation enterprises, the government can foster deeper integration of capital chains with innovation, industrial, and talent chains. This, in turn, will improve the commercialization of scientific and technological achievements and the level of industrialization, cultivating a more favorable environment for the growth of such enterprises.

From the perspective of collaboration between the government and enterprises and synergy between policy and market forces, it is essential to ensure that government-guided funds play their due role. While expanding in both scale and scope, they should continue to uphold market-oriented and professional standards, take into account areas such as talent, industry, and capital, and focus on harnessing their own advantages, adopting investment banking-oriented thinking, and achieving transformation and development through practice.

In terms of project resource support, greater emphasis should be placed on conducting in-depth research into strategic emerging industries, distinctive local industries, and their upstream and downstream supply chains, with corresponding efforts strengthened. Projects should be solicited through competent authorities and partner institutions to build a well-resourced repository of investable enterprises. This would facilitate the recommendation of quality projects to partner funds and outstanding funds to enterprises in the repository, thereby creating an integrated platform for fund-project matchmaking. At the same time, certain government-guided funds should shift from an administrative mindset to a market-based one, aligning personnel, capabilities, and structures to meet the professional requirements of fund investment and management.

It is fair to say that China's model of financial support for scientific and technological innovation and industrial development embodies an integration of policy guidance and market-oriented operations, a parallel emphasis on direct and indirect financing, and an organic unification of technological empowerment and risk sharing.

Other countries can draw flexibly on these practices based on their own economic structures and the maturity of their financial markets so as to foster resilient and dynamic financial ecosystems, industrial structures, and drivers of technological innovation.