Long-term value outlook to drive growth

China has created a friendly business environment for modern enterprises

Long-term value investing in the Chinese capital market is fostering innovation-driven and fast-growing enterprises and encouraging Chinese business leaders to rethink their companies' position in the transformation of global value chains, said a senior economist.

During the past decades, China's inclusiveness and openness for international economic cooperation have improved. The country has created a friendly business environment for modern enterprises, especially for those with a remarkable capacity of technological innovation, said Jin Li, deputy head of Peking University's Guanghua School of Management, in an exclusive interview with China Daily.

"Despite the disruptions of Sino-US trade tensions, the Chinese economy will stay in good shape," said Jin, adding that technological innovation is a key factor to enhance productivity and foster sustainable growth.

As the trade tensions have escalated after the United States imposed hefty additional tariffs on a large amount of Chinese goods, enterprises in China need to rethink the shifting of value chains and the consequences, the economist said.

China is starting to play a significant role in research and development, as well as design, along with the rise of global value chains, according to David Dollar, a senior fellow at the Brookings Institution's John L. Thornton China Center.

Dollar's research shows that about two-thirds of international trade now take place within such global value chains, up from 60 percent in 2001.

"Free trade is the best policy," said Dollar. "It is impossible to fine-tune trade policy to help a geographic region or group of workers. And it is better to concentrate on easing the adjustment as production and jobs naturally evolve."

The Chinese government and enterprises have "very accommodative" mechanisms to encourage international research cooperation and attract talents, such as to provide financing and well-equipped laboratories for research, said Jin in the interview.

The domestic market boasts huge business potential of technology commercialization, and the nation is attracting leading global tech firms to invest here or conduct research cooperation, Jin said.

In the long run, China needs to address the weak link in its overall favorable environment for technological innovation - the lack of long-term, patient capital - to sharpen the country's competitiveness amid lingering external uncertainties, he added.

The lack of "patient investments", or long-term value investing, is restricting the country's ability to master core technologies, such as those related to chip development, according to Jin. He pointed out the existing contradictions between short-term speculation in the capital market and insufficient funds for fundamental research.

"The reason why the majority of local enterprises do not dare to conduct such fundamental research is that the country's capital market featuring short-term speculation does not support them doing that," said Jin, citing Chinese tech giant Huawei deliberately choosing not to go public.

"China's capital market should be reformed to help long-term investors obtain higher yields than short-term ones, which will help refill the market with more patient capital," Jin said, adding that both the market and the government can come into play in that respect.

The nation's top regulators are paying great attention to capital market reform and opening-up to better serve economic restructuring, and are considering measures to usher in more patient investors.

Vice-Premier Liu He said recently that the country will expand the channels of long-term capital - such as insurers' funds, pension funds and enterprise annuities - into the capital market, steadily enlarging institutional investors' participation.

Concrete measures in this regard may start from the China Banking and Insurance Regulatory Commission. The top banking and insurance regulator recently said it is considering raising the ceiling for insurance companies to invest in equity assets.