At a glance: The Ministry of Science and Technology (MOST) and the China Development Bank released a notice stating that they will work together on issuing over CNY 10 billion in special purpose bonds to increase financing for the transformation of science and technology (S&T) achievements. This refers to the transfer of innovative technological achievements from scientific research units to the production sector, resulting in new products, improved processes, increased efficiency, etc. The key goals for the joint initiative are to:
- Support demonstration projects on the transformation of S&T achievements and successfully bring several breakthrough technologies to market
- Build regional innovation hubs, advance the growth of 100 national innovation cities and 100 national high-tech parks i.e., “100 Cities and 100 Parks” initiative
- Develop national technology innovation centers and key laboratories and direct universities and research institutes to align research activities with the needs of enterprises
- Facilitate the incubation of innovative small- and medium-sized enterprises (SMEs) with leading innovative enterprises supporting the growth of science focused SMEs
MERICS comment: The notice reflects a weakness in China’s innovation system, whereby 76.6 percent of R&D is carried out by the private sector, yet the application of S&T innovation remains limited. The transformation rate of S&T achievements for China is cited at just 30 percent compared to about 60 or 70 percent in advanced economies. To bridge this gap, policymakers are supporting SMEs to move beyond the R&D stage into production. For example, in addition to special purpose bonds, the government’s “little giant” program offers targeted supported to SMEs to enhance China’s technological capabilities and create more secure supply chains (see July issue).
Yet more can be done, and China’s leadership is eager to channel both private and public funds towards small innovative firms. As it stands, China’s financial system does not funnel sufficient money towards these companies, with few people willing to invest in such risky ventures. As such, President Xi announced the launch of the Beijing Stock Exchange (BSE) dedicated to supporting innovative SMEs, to improve the accessibility and efficiency of capital allocation to promising firms.
While each of these measures may not be significant on their own, taken together they could help to foster new tech leaders in sectors where China has an advantage, for example, in data-rich industries like AI. Foreign firms operating in such sectors will need to watch out for emerging competitors. The push for Chinese public research institutes to collaborate closely with domestic tech companies will put foreign firms at a further disadvantage.
Policy name: Notice on Special Purpose Bonds for the Industrialization of Major Scientific and Technological Achievements (科技部办公厅 国家开发银行办公室关于开展重大科技成果产业化专题债有关工作的通知) (Link)
Issuing bodies: MOST, China Development Bank
Date: September 18, 2021