Capital market to play key role in driving growth

Experts: Financial service providers should further stimulate firms' vitality

China's capital market will play a significant role in stimulating the vitality of rising Chinese technology companies, further nurturing the country's technological advancement and driving high-quality economic growth, experts said on Tuesday.

This is in light of the central leadership stressing the vital importance of the financial sector in serving the real economy, they added.

The comments came as the technology-heavy STAR Market at the Shanghai Stock Exchange celebrated its four-year anniversary on Tuesday. The creation of the board was announced by President Xi Jinping in 2018 and officially launched in June 2019.

Xi has stressed that serving the real economy is the duty and purpose of the financial sector and the fundamental way to guard against financial risks. Financial vitality leads to economic vitality, he said.

Li Yunze, head of the National Financial Regulatory Administration, said at the 14th Lujiazui Forum held in Shanghai on Thursday and Friday, that the capital market should play a key role in connecting technologies, industries and finance. Only in this way can technological advancements be transferred more effectively to better serve the real economy, Li said.

Cheng Shi, chief economist at ICBC International, said technological innovation has become the new engine for China's economic growth. The Chinese capital market, therefore, needs to be optimized to stimulate market entities' vitality and nurture independently developed advances in technology.

The STAR Market has served as a good example of the capital market showing support for technological innovation, according to experts at Haitong Securities. Over the past four years, the technology-heavy board has fulfilled its task of nurturing "hard technologies" such as chipmaking and high-end manufacturing, they said.

Of the 534 companies listed on the STAR Market, 218 are new-generation information technology companies, 108 are biomedicine companies and 88 are high-end equipment manufacturers, according to public data.

"Companies driven by scientific research results and technology innovation will be the pillar of China's high-quality economic growth," said analysts at Haitong Securities.

Zhao Xijun, co-president of the Chinese Academy of Financial Inclusion at Renmin University of China, said that China has been on the right track of guiding more capital market resources toward technological innovation over the past few years.

The registration-based initial public offering mechanism, which was first piloted on the STAR Market four years ago, has enhanced the capital market's inclusiveness. While companies not reporting profits are allowed to list on the STAR Market as long as they meet certain requirements, high-tech companies' development requirements are better met at different development stages, Zhao said.

To better facilitate China's economic recovery, more effective measures should be taken now, so that the capital market can better serve the real economy, he added.

Liu Feng, chief economist at China Galaxy Securities, said that the Chinese capital market should increase its efficiency in serving the real economy, as China stresses the importance of innovation-driven economic development.

At present, 80 percent of the capital directed to the real economy comes from banks. Although China is already the world's second-largest equities market, stocks and bonds still account for a relatively small part of aggregate financing to the real economy. This is the area that the Chinese capital market can improve to serve the real economy with greater efficiency, said Liu.

Gu Shu, chairman of Agricultural Bank of China, pointed out that traditional financial service providers, such as commercial banks, are more prudent in providing financing. But technology startups usually incur higher risks, making it difficult to attract traditional financing at the early stage, he said.

A multilevel capital management system should be established, said Wang Weidong, executive vice-president of China Development Bank.

Government investment should be mainly responsible for technologically innovative projects related to public welfare. For projects with clear market prospects, financial institutions should invest more by coming up with optimized financing products.

Policy banks can play a bigger role in getting projects that face temporary problems but ready for market operation, he said.

Qiu Yong, chairman of the Shanghai Stock Exchange, said the bourse will continue efforts to support the listing of companies with original technologies so that the companies can facilitate the development of emerging industrial clusters and the upgrading of traditional industries.

Richard Keers, chief financial officer of Schroders, said that China's further financial opening-up can facilitate the cross-border flow of venture capital and promote the country's technological innovation.

The expansion of qualified foreign limited partners, through which foreign investors can convert US dollars into renminbi and invest in RMB-denominated private markets, can provide more funding for early-stage innovation, Keers said.

The scheme can also facilitate the maturity of Chinese domestic venture capital companies, making them more proficient in evaluating Chinese startups, he added.