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A Study on Science and Technology Investment and the Innovative Financial System in China
2004-09-11
Lu Zhongyuan, Wei Jianing, Li Jianwei & Wang Zhao
I. Major Patterns of the Financial Sector Investment in Science and Technology Development in China
There are various patterns of financial sector investment in science and technology, which include loans from financial institutions, securities financing, venture capital investment, and credit guarantee, among which loans for science and technology development is the major pattern of financing. Although other financing methods have developed rapidly, they are still confined in a limited scale.
1. Loans from financial institutions constitute a major form of investment in science and technology by the financial sector
The science and technology development funds of enterprises and public institutions in China come from three main sources: self-raised funds of enterprises, government funds and loans from financial institutions. Among which, enterprise funds constitute the largest source of science and technology development expenses. During 1990-2001, they increased from 17.44 billion yuan to 145.84 billion yuan, growing at an average annual rate of 21.29%, and amounting from 43.2% to 56.3% of the total expenses in science and technology development. Government funds constitute the second largest source of science and technology development expenses. In the same period, government funds rose from 12.41 billion yuan to 65.64 billion yuan, representing an average annual rate of 16.35%, but its proportion in the total expenses of science and technology development funds dropped from 30.77% to 25.35%. The third largest source of science and technology development expenses is loans from financial institutions, which grew from 4.9 billion yuan to 19.08 billion yuan, rising at an annual average rate of 13.15%, while its proportion in the total science and technology development expenses dropped from 12.16% to 7.37%.
In terms of the patterns of financial sector investment in science and technology, the major channel is the loans from the financial institutions. Since 1995, the financial sector gradually increased its investment in science and technology. The proportion of loans for science and technology development made by financial institutions increased year by year, rising from 9.76% in 1996 to 20.05% in 2001. In recent years, loans made by financial institutions in science and technology development focused on support of large and medium-sized industrial enterprises. They mainly supported projects of agricultural science and engineering science and technology in the natural sciences field, and provided strong support to small projects under 3 million yuan and large projects above 10 million yuan.
2. Stock-market finance has become the major financing channel of high- and new-tech enterprises, but the aggregate scale remains limited
In recent years, China’s stock market developed rapidly and has become the second largest channel of exogenous financing of enterprises in China only next to loans from financial institutions. Based on statistics, there was a total of 1271 companies listed in China from 1990 to July 2003, and their total finance reached 471.23 billion yuan. Among which, there were 518 companies of high- and new-tech industries, such as information technology industry, pharmaceutical and bio-product industry, machinery equipment and instrument manufacturing industries, which took up 40.76% of all the listed companies. Total finance of these high- and new-tech enterprises reached 165.5 billion yuan, amounting to 35.12% of all financing capital of the entire stock market. The stock market provided important support to the financing of the high- and new-tech enterprises. However, compared with the total financing of science and technology investment, the total amount of funds raised by the high- and new-tech enterprises from the stock market is still limited. During 1990-2001, total financing for science and technology investment reached 1366.043 billion yuan, of which loans from financial institutions took up 150.86 billion yuan, amounting to 11.04% of the total, and funds raised from the stock market took up 137.699 billion yuan, amounting to 10.08% of the total.
3. Other methods of investment in science and technology, such as bond financing, venture capital investment, investment funds, credit guarantees and bank-enterprise cooperation under the guidance of the government, are only at the starting up stage.
It was only by 2003 that the first experiment of the bond financing method of investment in science and technology took place under the organization of the Ministry of Science and Technology. Through the experiment, 800 million yuan "Enterprise Bonds of High- and New-tech Industrial Zones in China" were issued for 19 infrastructure construction projects in 12 state-level high- and new-tech zones. So far, over 200 risk investment companies have been established, but their total amount of capital is only around 10 billion yuan. Compared with over 80,000 private science and technology enterprises, their number and size can hardly satisfy the financing needs of small and medium-sized science and technology enterprises. Although the Technical Innovation Fund for Small and Medium-sized Science and Technology Enterprises established in 1998 have assisted the development of the small and medium-sized science and technology enterprises, it has a limited financing scale. By 2002, it received 16200 project applications with a total financing request of about 17.2 billion yuan, but it has so far only assisted 3749 projects with a fund of 2.8 billion yuan. Currently, China has already developed various credit guarantee services for small and medium-sized enterprises, but most of them use the method of credit guarantee under the guidance of local governments with limited coverage.
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