National People's Congress representative Tian Xuan: Banks play a relay role in the technology innovation chain

Southern Finance National Two Sessions Reporting Team, Tang Jing, Bian Wanli Under the long-standing financial structure in China dominated by indirect financing, what roles can commercial banks still play in supporting technology innovation enterprises and industrial innovation? Tian Xuan, a representative of the National People's Congress and a distinguished professor at Peking University, stated in an interview with 21st Century Business Herald that China's technology finance has developed rapidly under national support, but there is still room for optimization at the institutional level. For example, the current financial system in China, which is based on a bank-dominated indirect financing model, does not fully match the national requirements for early investment, small investment, long-term investment, and investment in hard technology, leading to multi-level mismatches. The first level is the mismatch between short-term and long-term. The technology innovation cycles supported by early and small investments are extremely long, while banks under the indirect financing model focus more on short-term financing, with loans of six months, one year, two years, or three years, which do not match the technology innovation needs that often require eight years, ten years, or even longer cycles. The second level is the mismatch between certainty and uncertainty. The early, small, long, and hard technology investments supported by technology finance have a high degree of uncertainty in their innovation processes, while banks tend to pursue certainty. The third level is the mismatch in funding volume. The funding required for early small projects is not large, with hundreds of thousands or a few million yuan sufficient, while banks, especially large commercial banks and state-owned banks, tend to provide large-volume loans. "Therefore, there is still considerable room for improvement in the development of technology finance in China," Tian Xuan stated. "We are vigorously developing direct financing, especially equity financing, and we need to introduce patient capital, as well as bold capital." He further pointed out that in the primary market, it is necessary to optimize the evaluation and assessment system of state-owned investment institutions, reduce their risk aversion, and guide them to invest in early-stage and long-term projects; in the secondary market, it is essential to introduce long-term investment forces such as insurance funds, pension funds, and retirement funds to truly achieve long-term investments. Direct financing such as equity investment better supports technology innovation from 0 to 1, as these enterprises may not have stable cash flows and mature business models, making them more suitable for direct financing. In Tian Xuan's view, China has a vast indirect financial system represented by banks, and commercial banks are not without a role in technology innovation and industrial development; rather, they play a relay role in the entire innovation chain. He said that after achieving breakthrough innovations from 0 to 1, the industrial innovation connection from 1 to 100, or even from 100 to infinity, requires the participation of commercial banks. Enterprises at this stage already have mature business models and technology products, needing to scale through iteration and replication, which highly matches the characteristics of commercial banks. Therefore, the indirect financing system of commercial banks can better support the development and iteration of enterprises with stable cash flows, mature business models, and reliable products, thereby assisting industrial innovation. Tian Xuan stated, "We should combine direct financing with indirect financing, equity financing with debt financing, to continue to exert efforts and achieve coverage of the entire lifecycle of enterprises, thereby better improving innovation levels and developing new productive forces." ”