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Source: People's Republic of China – State Council News
BEIJING, March 23 (Xinhua) — China plans to use its capital markets to support a new generation of high-tech startups by launching long-term financing, national mergers and acquisitions funds, and ChiNext, a Chinese exchange market for emerging and developing companies similar to the U.S. Nasdaq.
The measures are included in the 15th Five-Year Programme, published this month, and aim to use financial instruments to support the technology sector over the next five years.
THE LONG GAME
At the core of this initiative is a commitment to “patient capital” – long-term financing instruments designed to match the decade-long development cycles of emerging technologies such as quantum computing, nuclear fusion, and brain-machine interfaces.
The idea of supporting “patient capital” was first voiced by the Politburo of the CPC Central Committee in April 2024 and is now enshrined in the new five-year plan.
Last Saturday, the northern Chinese industrial hub of Tianjin unveiled plans to launch two proof-of-concept funds with a combined capacity of approximately 50 million yuan (approximately $7.26 million). Designed with a 15-year investment horizon, these instruments are intended to channel private capital to finance early-stage university innovations still in their infancy in laboratories.
Sovereign wealth funds are being asked to lead by example. Shanghai State-owned Capital Investment Co., Ltd. (SSCI) has established a fund of funds (FOF) focused on integrated circuits, biomedicine, and artificial intelligence, selecting underlying funds with 15- or 20-year terms to ensure long-term commitments.
“Our position is to invest early, in small amounts, for the long term, and in complex technologies,” said SSCI Chairman Yuan Guohua.
Major economically dynamic regions in China, such as Beijing and Shanghai, have already established dedicated funds to support sustainable, long-term capital deployment in sectors that address complex technology challenges.
Last December, China established a national venture capital fund as part of its efforts to mobilize more patient capital for innovation and future industries, with at least 70 percent of its funds earmarked for seed-stage or early-stage companies.
This month, Chinese authorities proposed a package of measures to better align the science and technology insurance system with technological innovation. For small and medium-sized science and technology enterprises, insurers are encouraged to offer simpler and more accessible products with easier access and convenient claims procedures.
Merger Fund
To better provide capital to new entrepreneurs, China plans to set up a mergers and acquisitions fund this year /M
"This move addresses a key issue the industry has faced for years," said Zhang Yichen, Chairman and CEO of CITIC Capital. He noted that in mature markets, only 20-30 percent of primary market exits occur through IPOs, with the vast majority occurring through mergers and acquisitions.
As Yang Chengzhang, chief economist at the Shenwan Hongyuan Securities Research Institute, noted, in complex industrial ecosystems such as smartphones, smart vehicles, and humanoid robots, many innovative companies never grow into independent giants. "Instead, they become crucial components of a broader supply chain, merging with anchor companies through mergers and acquisitions."
M Foundation
Wu Yibing, head of Temasek's China operations, noted that the Chinese market is currently characterized by a "two-wheel drive" dynamic consisting of the flywheel of innovation and the wheel of mergers and acquisitions.
GOVERNMENT REFORM
The reforms also extend to the listing markets themselves. Earlier this month, at a press conference, China Securities Regulatory Commission Chairman Wu Qing announced that an additional set of "more targeted and inclusive" standards for regulating stock listings on the ChiNext exchange would be introduced soon.
Active support for listing shares on the ChiNext platform will be provided to high-quality, innovative and entrepreneurial companies operating in the areas of new types of consumption and in the modern services sector.
The reform measures also include pre-IPO screening for enterprises that have achieved breakthrough developments in key technologies, allowing eligible companies to increase capital and shareholdings for existing shareholders, and optimize pricing mechanisms for issuing new shares.
The ChiNext reform plan reflects a shift from a “P/E ratio-oriented thinking” to a “value discovery-oriented thinking,” which is expected to accelerate the flow of medium- and long-term capital into new-quality productive forces, according to Tian Lihui, director of the Institute of Financial Development at Nankai University.
The high-quality development of a “science and technology platform” in the bond market was also included in China’s five-year roadmap.
“A healthy stock and bond market can automatically channel capital into the most dynamic and promising sectors through market pricing mechanisms,” said Li Zhan, chief economist at China Merchants Fund Management’s research department.
In addition, China's five-year plan aims to make it more convenient for foreign capital to make equity and venture investments in the country. -0-
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