Summary of Key Points
Tian Xuan, Dean of Peking University Guanghua School of Management, stated at the Securities and Fund Industry Conference that China's economy has entered a phase of moderate to high growth. To find new areas for growth, it is essential to rely on technological innovation to develop "new quality productivity." However, technological innovation faces three major challenges: long cycles, high uncertainty, and a high failure rate. The solutions lie in two financial approaches: creating a more inclusive venture capital (VC) market that embraces entrepreneurs and investment firms, and activating corporate internal venture capital (CVC) departments. Together, these two mechanisms can create an ecosystem that directs financial resources towards the field of technological innovation.
Detailed Analysis
1. The Economy Has "Shifted Gears"—Why Rely on Technological Innovation?
In the past, our GDP growth targets were around 5%, but this year they are set at 4.5%-5%, indicating a transition from high-speed to moderate-high growth. This is akin to reducing the driving speed from 120 miles per hour to 80 miles per hour; the previously reliance on real estate and traditional manufacturing is becoming increasingly unsustainable. To maintain growth, we need to find new "engines," which are represented by technological innovations such as AI, chips, and biotechnology. Only through these advancements can we open up new avenues for economic growth and avoid falling behind in international competition.
2. Why Is Technological Innovation So Difficult?
Tian Xuan identified three insurmountable barriers to technological innovation:
- Long cycles: Results do not emerge immediately after investment. For example, developing a new drug can take 10 years from laboratory research to market launch, requiring continuous funding.
- High uncertainty: Innovation is like walking in the dark; no one can guarantee success. Trying 10 different approaches for an AI application might result in none working out, or it might take multiple attempts to find the right solution.
- High failure rate: Most innovations fail. Of 10 projects funded by venture capital, only one may succeed, with the remaining nine being a loss of investment.
3. The First Strategy: Make the VC Market More "Tolerant" and Avoid Impatience for Quick Success
To overcome these challenges, we need to make the VC market more accommodating:
- Tolerance for entrepreneurs: Allow young, innovative, and sometimes unconventional entrepreneurs to make mistakes. Some ideas may be ahead of their time and not immediately profitable, but they should not be dismissed by the market.
- Tolerance for investment firms: Many investment institutions, especially those guided by government policies, are hesitant to invest in early-stage, small-scale high-tech projects due to slow returns. Tian Xuan suggests extending the funding period (e.g., from 5 years to 10 years) and improving evaluation mechanisms to encourage them to invest in early-stage, small-scale, long-term, and high-tech initiatives.
4. The Second Strategy: Activate Corporate Venture Capital (CVC) to Link Industries with Innovation
Corporate venture capital differs from traditional VC in the following ways:
- Funding source: Traditional VC relies on external investors, while CVC uses funds from the parent company (e.g., Tencent or Alibaba's investment departments).
- Purpose: Traditional VC aims for profit through later sales, whereas CVC focuses on strategic goals. For instance, a car company may invest in new energy battery companies to ensure a stable supply of batteries and build a competitive advantage.
Tian Xuan believes that active CVC can directly link innovation with industry, facilitating the rapid implementation of technological innovations.
5. Combining These Two Approaches to Build a Financial Ecosystem for Technological Innovation
An inclusive VC market provides early-stage projects with the necessary funding, while active corporate venture capital helps mature companies integrate innovative technologies into their operations. Together, these two approaches create a positive cycle where innovation receives support, companies gain new technologies and industrial capabilities, and financial tools play a vital role in fostering the development of "new quality productivity."
In Summary
To support technological innovation through finance, we must loosen restrictions on entrepreneurs and investment firms and encourage large corporations to participate in investment. Only by doing so can the seeds of innovation grow into robust pillars that drive continued economic growth.