Cultivating and developing new quality productive forces is an important focus of the mainland's current economic work. The meeting of the Political Bureau of the CPC Central Committee held on April 30 once again emphasized that "it is necessary to develop new quality productive forces according to local conditions", and for the first time proposed to "actively develop venture capital and strengthen patient capital", which requires us to attach importance to the construction of the capital market, promote finance to better serve scientific and technological innovation and the real economy, and further point out the way for the development of new quality productive forces, and also point out the direction for high-quality financial development. "Strengthening patient capital" is an important theoretical and practical innovation in the mainland to scientifically grasp the characteristics and behavioral laws of capital, guide capital to play an active role, and serve the national strategic needs.
Patient capital is long-term strategic capital
Patient capital means risk, long-term and strategic. From a venture capital perspective, "Patient Capital" means having enough ability to take risks. In the process of scientific and technological innovation, whether it is an emerging industry or a future industry, it has the characteristics of large R&D investment, long R&D cycle and high investment risk, so it must be supported by patient capital. Taking lithography machines as an example, the Dutch giant ASML has been focusing on this technology field for more than ten years, and it was not until 2015 that the EUV lithography machine was finally commercially mass-produced. In the process, the company was also on the verge of bankruptcy due to financial difficulties. Without long-term, strategic venture capital, technology research and development may stall and commercial mass production will not be possible.
While taking risks, Patience Capital expects long-term returns, which is the core connotation of the word "patience", which means that short-term fluctuations and losses will not affect investors' decision-making. Since it is a long-term investment, it must be aimed at strategic industries with broad growth space. Therefore, patient capital is also strategic capital. In July 2023, the State-owned Assets Supervision and Administration Commission of the State Council pointed out that it is necessary to promote the concentration of state-owned capital in forward-looking and strategic emerging industries, and be a good "long-term capital", "patient capital" and "strategic capital". The current meeting of the Political Bureau of the CPC Central Committee emphasized "strengthening patient capital", which is in line with the needs of the mainland to develop new productive forces, cultivate and expand emerging industries, and build future industries ahead of time.
Patient capital should serve the cultivation and development of new quality productive forces. Scientific and technological innovation is the core element of the development of new quality productive forces, and it needs long-term and stable financial support. Most start-ups are not enough to meet the requirements for listing and financing, and the biggest problem they face is that financing is difficult and expensive, and the lack of "patient capital" is an important practical problem facing the mainland. In the future, with the further release of the mainland's economic development potential, the steady advancement of high-level scientific and technological self-reliance and self-reliance, and the continuous empowerment of high-quality productive forces with new quality productivity, the mainland capital market is expected to further attract more "patient capital".
Create an atmosphere in which the government leads the investment and institutions and individuals follow the investment
The book "Patient Capital" by American scholars Victoria Ivanhina and Josh Lerner interprets the challenges and prospects of long-term investment from the perspective of institutional investors and private equity funds, and mainly examines how to do a good job in long-term venture capital from the perspective of private capital. However, patient capital is long-term strategic capital, while private capital is often short-term and profit-seeking, and it is difficult to play the role of long-term strategic capital. At present, in the context of a new round of scientific and technological revolution and industrial transformation, all countries are actively mobilizing national financial forces to support scientific and technological innovation. The author believes that whether it is based on the characteristics and requirements of patient capital or the needs of international scientific and technological competition, patient capital should be dominated by state-owned capital.
At present, the financial structure of the mainland is dominated by indirect financing and debt financing, and the supply of long-term equity funds is relatively small, so patient capital should be mainly based on direct financing. For patient capital, it should not only be understood in a narrow sense to guide long-term funds into the market and overcome short-term fluctuations in the capital market, but should focus on supporting technological innovation, emerging industries and future industrial development, strengthen the linkage between the primary and secondary markets, and establish an effective support and exit mechanism. As far as the mainland is concerned, it is necessary to increase the support of the national sovereign wealth fund for scientific and technological innovation led by state-owned capital, and actively guide the participation of medium and long-term capital and social capital, and strive to create an atmosphere of government-led investment and follow-up investment by institutions and individuals, so as to jointly promote the development and growth of the mainland's patient capital.
The first is to strengthen the support of national sovereign wealth funds for scientific and technological innovation. The mainland has already had important practical explorations in this regard, and has successively set up the first and second phases of the national "chip fund" to support the research and development breakthroughs of the mainland chip industry. All localities have also combined their own development advantages to set up government investment funds for strategic investment. In the future, more industrial development funds should be set up, and the linkage between state-owned industrial funds and social investment should be strengthened to promote scientific and technological innovation and industrial development on the mainland.
The second is to cultivate more mature institutional investors and introduce more long-term capital. At present, many institutional investors in mainland China still have great deficiencies in equity investment and risk management, and it is difficult to provide sufficient financial support for the real economy. Recently, the State Council proposed to strengthen the financial "national team", which reflects the mainland's determination to actively strengthen the construction of state-owned financial institutions and better promote scientific and technological innovation in financial services and the real economy. In terms of funding sources, the scale of "patient capital" represented by pensions, insurance funds, and social security funds in the mainland has increased year by year, but there is still a lot of room for improvement compared with other major economies, and it is necessary to continue to increase the weight and scale of long-term capital equity asset allocation.
The third is to regulate and guide the healthy development of the venture capital industry. The 2023 Central Economic Work Conference clearly proposed to "encourage the development of venture capital and equity investment", and the meeting of the Political Bureau of the CPC Central Committee further emphasized "strengthening patient capital", which requires the venture capital industry to be good at discovering investment opportunities, but also to adhere to long-term value investment, to set a performance appraisal standard for a longer period of return on investment for capital, encourage investment institutions to pay attention to the long-term value of enterprises, and increase investment in start-ups, small and micro enterprises, and science and technology enterprises. At the same time, long-term value investment also puts forward higher requirements for the industry's risk control capabilities, not only to do a good job in value assessment, but also to do a good job in risk assessment, and to maintain a dynamic balance between the two.
Fourth, cultivate compound professionals and strengthen talent support. To support scientific and technological innovation, finance needs more compound talents with financial knowledge and professional knowledge, who can accurately grasp the pulse of industry development and the operation law of the capital market, more closely contact and serve innovative enterprises, help them improve their ability to transform and industrialize scientific and technological achievements, and pass on enterprise value to investors. It is necessary to actively promote the financial sector to strengthen cooperation with colleges and universities, improve the talent cultivation mechanism, and cultivate more compound professionals who meet the needs of patient capital development.
Text: Ding Xiaoqin and Luo Zhihong (The authors are vice president of the Institute of Chinese Modernization, Shanghai University of Finance and Economics, and distinguished researcher of the Shanghai Xi Jinping Research Center for Socialism with Chinese Characteristics for a New Era; Assistant Researcher, Shanghai Institute of Economics, Shanghai University of Finance and Economics)
Photo: Visual China
Editor: Yu Ying