Government incentives boost growth in tech companies

Government-led investment and preferential tax policies can be the key driving forces of technology development in China, while policymakers are continually innovating on financing measures, analysts said.

In the past few years, how to effectively leverage the government's fiscal expenditure and promote technology innovation has become one of the major tasks for officials of the financial department in Northwest China's Shaanxi province.

At the very early stage of the scientific and technological development of companies, social capital is unwilling to invest due to higher risks that such businesses may fail.

The early and high-risk investment fund is usually named as an angel investment fund.

To solve this problem, the local government of Shaanxi established a government-led investment fund, to support manufacturing industries including high-end equipment, modern logistics and electronic information, said Li Minghuai, deputy head of the provincial finance department.

The Xi'an Institute of Optics and Precision Mechanics under the Chinese Academy of Sciences was one of the co-founders of the first special government-led investment fund in the country's northwest region in 2013. The original investment was 130 million yuan ($20.1 million), of which 80 million yuan was from the government.

After years of development, the total amount of funds in Shaanxi increased to 5.3 billion yuan, and this has been injected into the projects of 327 high-tech small and medium-sized companies and startups, which include chip and medical equipment makers, the local financial department said.

The government-led investment fund has leveraged more financing resources, including private capital, to effectively transform scientific and technological development achievements into profits for companies while better serving the real economy, Li said.

During the 13th Five-Year Plan period (2016-20), the provincial finance department in Shaanxi allocated 100 million yuan of special funds every year and established an investment system to support researchers and developers of core strategic technologies. At present, six projects in the fields of intelligent manufacturing, energy and chemical resources have been launched, Li said.

So far, the provincial finance department has invested 600 million yuan in 17 sub-funds and supported more than 300 startups, with total assessed value reaching more than 28 billion yuan, a document from the finance department said.

No less than 90 percent of the income, which is generated by transforming science and technology innovation achievements into profits, will be awarded to key researchers of the projects, the document added.

China strengthened policy support this year to ease the tax burden on science and technology innovation companies and high-end manufacturers, especially for the purpose of helping them contain the impact of the COVID-19 pandemic.

In order to further encourage enterprises to increase investments in research and development, the Ministry of Finance released guidelines for the new policy of extra pretax deductions for research and development expenses of manufacturers.

The deduction ratio was raised to 100 percent from 75 percent, effective on Jan 1. It means if manufacturers invest more in R&D, the amount of their tax payable would be reduced and the overall operational costs would be lower, according to the ministry.

Experts predicted this policy could save about 80 billion yuan in tax payments for enterprises in China, which is the strongest tax reduction measure of 2021 so far.

Another preferential tax policy introduced by the ministry is that starting from April 1, the government refunded all due value-added tax credits to advanced manufacturing enterprises on a monthly basis. The scale of qualified taxpayers has been expanded to include industries such as transportation equipment manufacturing and electrical machinery manufacturing.