With the technology sector seen playing a crucial role in China’s planned economic transformation, Beijing is seeking to diversify the funding channels for the industry and improve its linkages with financial markets and institutions.
As part of the efforts, companies will be encouraged to seek overseas listings to raise foreign capital and enhance their profile. At the same time, a wider array of fund-raising options will be made available at home, including preferred stock issuances and convertible loans.
The People’s Bank of China, along with five other government departments, will push for a new administrative structure to boost the integration of technology development and finance, an official circular showed recently.
Technology firms in the country had long been complaining of inadequate funding channels, with bank financing not easily available for start-ups as the firms lack physical assets to pledge as loan collateral. That has forced the firms to turn to private-equity investors and overseas capital markets.
Such moves have led to the strange situation where most of the leading mainland internet and technology firms like Sina Corp, Tencent Holdings and Baidu.com have flocked to either Hong Kong or the US bourses for their funding needs, while their market is in China.
As the situation won’t change easily, Beijing will keep encouraging local technology firms to get listed on overseas stock exchanges. Authorities are apparently aware of the problems in the domestic capital market, with investor sentiment having been hurt by the poor performance of local equities as well as the suspension of initial public offerings in the country in the past year.
In addition to IPOs in overseas markets, regulators aim to speed up consolidation and mergers and acquisitions activities to boost the industry development. To fund these activities, the government is studying the possibility of broadening the fund-raising channels through tools such as preferred shares and convertible loans.
Meanwhile, private capital will be encouraged into new small and medium-sized banks that will provide professional banking and financial services to firms in the technology and innovation sector.
Existing banks will be urged to set up dedicated teams to serve the new category of customers, as well as provide training to internal staff to support technology firms’ financing, according to the circular. Qualified microcredit and leasing companies will be encouraged to raise money for small technology enterprises by converting assets to securities and issuing bonds.
Banks should formulate measures to expand credit services for small technology enterprises by giving incentives to credit authorizers and applying duty exemptions, the circular added.
In other initiatives to support tech firms, China will strive to develop intellectual property rights “pledge financing” by enhancing the ability to evaluate, register, trust and circulate such rights. The government will also actively promote patent insurance.
To maximize the efforts to promote financial services development for technology companies, the government will establish an interdepartmental, cross-level coordination system that will involve the Ministry of Science and Technology, the Ministry of Finance and financial regulatory agencies.
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