The 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 based on commercial and financing models and the transaction structure. That's because scientific and technological innovations are the main driving force of development in today's world..
The policy banks’ special support policies to promote industrial finance can be the basis of cooperation between local governments and financial institutions
While market-led applied technology research and development spearheaded by enterprises are becoming an important source of new, advanced technologies in China and 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－from China playing catch up with to surpassing developed countries in core technologies－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 such core high-tech products as chips, 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 innovation-driven country and realizing the great rejuvenation of the Chinese nation.
China has been promoting the high-quality development of enterprises as an important part of its national development policy, but it should also provide capital for enterprises to help them operate normally.
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, and play a pioneering role in medium- and long-term financing, 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, so the country can adapt to the new era of globalization and the new geopolitical pattern.
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. Some enterprises have faced a financial crisis after investing huge amounts to promote innovations.
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 doesn't 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 with, and benefit domestic enterprises.
China should also strengthen intellectual property rights protection, and build a perfect innovation-promotion system, increasing policy banks' financial support to emerging industries of strategic importance, especially to leading innovation-driven enterprises in the industrial chains, so they can lead the development of emerging industries of strategic importance and gradually expand their role in high-tech 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. The policy banks' special support policies to promote industrial finance can be the basis of cooperation between local governments and financial institutions.
For this, however, policy banks should formulate support policies to help develop industrial finance, and include a special project for industrial finance development in their annual investment budget, so as to increase the input in industrial finance and create a favorable policy environment for cooperation between local governments and financial institutions.
Liu Weiping is a researcher at the China Development Bank and a professor of economics at Wuhan University, and Liu Bowen is a research assistant at New York University.
The views don't necessarily reflect those of China Daily.