Summary of Key Points
In 2025, for the first time in China, the increase in social financing came from bonds and stocks (direct financing) exceeding loans (indirect financing). Direct financing now accounts for one-third of the total financing. The Sci-Tech Innovation Board has been expanded to include future industries such as artificial intelligence. However, the capital market also faces challenges like a "K-shaped divergence" and debates about an "AI bubble." Zhang Xiaojing, director of the National Finance and Development Laboratory, believes that this marks an increase in China's ability to undertake institutionalized innovation risks. The capital market must fulfill the dual mission of both realizing the value of innovation and bearing the costs of failure. It is time to break away from the misconceptions of relying on banks for early-stage tech investment and state-owned capital to drive innovation, and to increase the proportion of equity financing. Investors need to adapt to the "Capital Market 2.0" era driven by technology and either improve their expertise or seek help through professional institutions.
I. Direct Financing Surpasses Credit: A Milestone, But Not the End of Transformation
The fact that direct financing has surpassed loans for the first time in 2025 is significant, but we must be realistic:
- Incremental Change, Not Fundamental Shift: Although the increase in direct financing (through bonds and stocks) has overtaken loans, loans still make up the majority of total social financing.
- Bonds Are the Main Driver of Direct Financing: The scale of bond financing far exceeds that of stock financing, and the growth in social financing increasingly relies on bonds.
- Clear Future Trend: President Pan Gongsheng's remarks indicate a long-term direction: direct financing will gradually exceed loans in terms of total volume, with equity financing (stocks) playing an even more important role. This is the goal for the "second half" of the financial development phase.
II. Breaking Two Types of Dependencies in the Financial Market
Zhang Xiaojing emphasizes two misconceptions that need to be corrected:
1. Don't Rely on Banks for Early-Stage Tech Investment: Banks are required to ensure the safety of their investments (fixed returns), and early-stage tech projects are highly risky. Banks either end up with a pile of bad debts or only invest in mature companies, which doesn't really fit the definition of venture capital. Banks can support mature tech companies, but early-stage investment should rely on venture capital and equity markets.
2. Don't Overrely on State-Owned Capital: State-owned venture funds have supported many high-tech projects, but they face constraints such as performance metrics that require value preservation and lifetime accountability, which deter them from investing in high-risk ventures or exiting investments promptly. Early-stage, small-scale, and high-tech investments require more market-oriented capital (e.g., VC/PE).
The core logic is that the capital market is designed to spread risks and share profits, making it the primary platform for supporting technological innovation, with banks and state-owned capital playing a supportive role.
III. The Capital Market Is Not Fully Prepared for Cutting-Edge Technologies
Cutting-edge technologies (such as AI, quantum computing, and biomanufacturing) pose significant challenges to the capital market, mainly due to two issues:
1. Maturity Mismatch: Many innovative companies take years to become profitable, but investors in the public market may not be willing to wait. For example, some companies with disruptive technologies might experience continuous losses for years; can the market sustain such investments? This depends on the investor base (more long-term funds) and valuation systems (whether they are willing to invest in companies that don't profit now but have potential value in the future).
2. Cognitive Barriers: These technologies are complex, and retail investors often lack the understanding needed to make informed decisions. As a result, pricing can be inaccurate, leading to either inflated prices (bubbles) or undervalued assets.
Zhang Xiaojing points out that "industry development cannot wait for the market to mature." Given the intense competition in technology between China and the U.S. (e.g., U.S. private AI investment was 23 times that of China in 2025), China must proactively reform its capital market to support high-tech initiatives.
IV. The Dual Role of the Capital Market
The capital market has a dual role: it should enable innovation to generate profits and also bear the costs of failure:
- The Primary Market Depends on the Secondary Market: Without a secondary market where companies can go public, the primary market will struggle to attract investment. VC/PE firms won't invest in early-stage projects if there's no exit option.
- Failure Is Not the End, but an Opportunity for Learning: If innovation fails, it provides valuable lessons that can accelerate technological progress. The capital market helps transform these failures into societal learning experiences.
- State-Owned Capital Has Limits: State-owned funds are constrained by performance metrics and avoid taking on high-risk investments, so a more market-oriented capital market is essential.
V. How Investors Can Profit in the Technology Era
To succeed in the technology-driven capital market, investors need to change their approach:
1. Focus on Future Potential: Instead of evaluating companies based on past performance, consider their potential for future growth. Tech companies may burn cash now but have significant long-term value.
2. Invest Through Professional Institutions: For complex fields like AI and quantum computing, it's better to use funds managed by professionals who understand the industry.
3. The Capital Market Is Not a Zero-Sum Game: Good companies create additional value for all investors over time. By choosing the right investments, investors can benefit from the growth of high-tech enterprises.
In summary, China's capital market is entering a "Technology-Driven 2.0" era, with increased direct financing indicating a growing willingness to take innovation risks. However, there are still many challenges to overcome, such as breaking misconceptions and adapting to the unique characteristics of technology-driven businesses. Investors need to shift their mindset and rely on professional institutions to navigate this new environment.
(The translation maintains the original structure of the Chinese text, using clear language that fits financial journalism standards and adapts terms to a global audience.)