Funding the tech future

The reorientation of sci-tech finance has become increasingly evident through tangible shifts in capital allocation and financial practices

China’s Central Economic Work Conference in December 2025 laid out a systematic framework centered on sci-tech finance, capital market reform and the development of new quality productive forces. It stressed the need to refine financial resource allocation, improve investment and financing mechanisms, advance the deep integration of technological and industrial innovation, and enhance the financial system’s ability to underpin innovation-driven growth. This blueprint not only responds to the intrinsic demands of China’s economic transformation and upgrading, but also aligns with the global trend among major economies to ramp up financial support for technological innovation.

Since the beginning of the 14th Five-Year Plan (2021-25) period, China has introduced a series of sci-tech finance policies to improve the allocation of financial resources. On April 12, 2024, the State Council, China’s Cabinet, released a guideline on strengthening regulation, forestalling risks and promoting the high-quality development of the capital market, establishing a “1+N” policy framework that includes more than 70 institutional arrangements.

Following this, a number of pilot initiatives were launched, covering equity investment, long-term investment by insurance funds, merger and acquisition loans for technology enterprises and intellectual property finance. These reforms are channeling more medium- and long-term capital into early-stage tech projects and high-tech industries, easing the structural financing bottlenecks that have long constrained technological innovation.

As these policies have taken effect, A-share initial public offering fundraising has grown notably, concentrated in sectors tied to new quality productive forces. In 2025, 111 enterprises completed listings on the A-share market, raising more than 125 billion yuan ($17.2 billion), representing an 86 percent year-on-year rise. Nearly half of this capital flowed into sci-tech innovation fields. This marks a sharp contrast with most mature markets, where IPO proceeds are generally spread across a broader range of industries. In the United States and Europe, tech companies typically account for only 20 to 35 percent of total IPO fundraising, with innovation relying more heavily on reinvestment, mergers and acquisitions, and private market activities led by established tech giants. Against this backdrop, the fact that nearly 50 percent of A-share IPO capital was channeled into new quality productive forces in 2025 is relatively rare among major economies, underscoring the capital market’s clear alignment with the nation’s technological innovation priorities.

Meanwhile, China’s financial system has been steadily reducing its overreliance on debt financing. The proportion of funding raised by attracting investors and issuing stocks and bonds through the capital market has continued to climb, shaping a balanced financing structure with equity and debt operating side by side. In 2025, direct financing made up 46.9 percent of the increment in aggregate financing to the real economy. As a result of broadening financing channels for technological innovation, related funding surged past 1.5 trillion yuan within seven months, injecting sustained capital momentum into technological innovation and industrial upgrading.

Within the banking system, mechanisms for backing tech companies are also undergoing structural evolution. By lifting risk tolerance ceilings, rolling out long-term, low-cost customized financing tools and adopting risk-pooling mechanisms such as insurance, financial institutions have continuously boosted financial support for small and medium-sized tech enterprises (SMTEs). By the end of September 2025, the aggregate scale of venture capital and private equity investment had reached 14.46 trillion yuan. Credit was granted to 275,400 SMTEs, with a loan approval rate of 50.3 percent. As of the end of May 2025, the non-performing loan tolerance cap for the country’s 2,187 sci-tech sub-branches was eased to 3 percent. The People’s Bank of China expanded the quota of its tech innovation relending facility to 800 billion yuan, with a maturity of three to five years and an interest rate of 1.75 percent — far below prevailing market rates — and permits up to two extensions if necessary. These measures have laid a solid institutional foundation for banks to increase credit support for tech companies.

While financial capital in China is increasingly flowing into the sci-tech innovation sector, it still falls short of fully meeting the fast-expanding needs of developing new quality productive forces. In terms of scale, despite the rapid growth in loans to SMTEs in 2025, their outstanding balance accounts for less than 2 percent of total corporate loans, and their loan approval rate remains below that of traditional industries.

Structurally, the divergence from advanced economies is even more striking. In most developed economies, corporate funding relies predominantly on capital markets, with direct financing generally accounting for more than 60 percent of total funding. Notably, the figure exceeds 70 percent in the United States. By contrast, as of the third quarter of 2025, the share of direct financing by Chinese non-financial enterprises in the total outstanding social financing stood at only 10.4 percent. This gap points to considerable room for enhancing the depth and patience of financial support for China’s technological innovation.

This year marks the opening year of China’s 15th Five-Year Plan (2026-30) period, which carries both the immediate task of growth stabilization and the strategic mission of fostering long-term development drivers. Sustained efforts are needed in the following areas.

First, the full cycle of financing, investment and exit for tech enterprises should be unclogged. By easing listing and refinancing rules, strengthening long-term capital incentives and assessment, and broadening exit channels such as mergers, acquisitions and equity transfers, the capital market can more effectively support high-risk, long-cycle technological innovation and prevent funding blockages at early and exit stages.

Second, indirect financing should be reformed to better serve sci-tech innovation. Financial institutions should move beyond the traditional credit model that relies solely on cash flow and financial statements. Instead, they should evaluate tech companies based on their core strengths: technological advantages, team capacity, market potential and intellectual property value. With closer investment-loan coordination and stronger risk sharing, banks can integrate loans, equity, bonds and insurance to share in enterprise growth and spread risks, enabling earlier and more targeted support for innovative companies. At the same time, fintech tools such as artificial intelligence and big data can be leveraged to assess tech companies from a holistic industrial and innovation ecosystem perspective, so as to improve project selection, risk pricing accuracy and service efficiency.

Third, coordination among fiscal, tax and financial policies should be enhanced. On the one hand, tax incentives could be refined for venture capital, government guarantees and sci-tech insurance could be enhanced, and bank, social security and insurance funds could be guided toward equity investment to build a collaborative risk-sharing system. On the other hand, China can fully leverage targeted monetary policy tools to encourage financial institutions to increase medium- and long-term credit for key sci-tech projects and SMTEs. Meanwhile, it can draw on the pilot experiences of sci-tech finance innovation zones in Beijing, Shanghai and Shenzhen to develop replicable practices in products and systems, providing models for upgrading the national sci-tech finance system.

In 2026, China will continue to break bottlenecks with reform, generate momentum through policy coordination, and fuel innovation with patient capital. These steps will accelerate the development of new quality productive forces, upgrade traditional industries, expand emerging sectors and plan for future industries, injecting sustained impetus into the steady and sound development of the global economy.

The author is a member of the National Committee of the Chinese People’s Political Consultative Conference, a member of the Standing Committee of the Jiusan Society Central Committee, and the director of the Research Office of the Jiusan Society Central Committee.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.