Summary of Key Points
Zhang Xiaojing, Director of the National Finance and Development Laboratory, emphasized at the conference that technology finance is the top priority among the “five major areas” of financial development. The main battlefield for technology finance is not in banks but in capital markets, such as venture capital systems. The underlying logic of technology finance in the United States is one of “good-faith disregard for risk,” “tolerance for failure,” and “global risk sharing.” However, China cannot simply copy this model; it must explore its own approach based on national conditions. While China has done well in the initial phase of financial development (facilitating capital financing), it needs to address weaknesses in risk management. This requires building an institutional framework that encourages innovative risk-taking behaviors from both a systemic and cultural perspective.
Why Isn’t the Main Battlefield for Technology Finance in Banks?
Zhang Xiaojing pointed out that the core of technology finance is to help tech companies overcome the “valley of death”—the most vulnerable period between developing a technology and achieving actual profitability. Banks hold funds from depositors and are cautious about investing in high-risk early-stage tech companies. In contrast, capital markets (such as venture capital funds and stock markets) are willing to take on higher risks in exchange for potential high returns, providing necessary support to tech startups and enabling them to realize their innovative value through public offerings. Therefore, the main drivers of technology finance are not banks but venture capital and capital markets.
The Underlying Logic of American Technology Finance: “Trial and Error, Then Mitigation”
The core of the American model is a willingness to overlook risks temporarily:
1. Attitude: Americans view market crises as a means of weeding out inefficient companies and optimizing resources.
2. Institutions: There are mechanisms in place to protect investors from losses, such as limited liability laws, bankruptcy laws (which prevent lifelong debt for businesses or individuals), deposit insurance (protecting savers in bank failures), and social safety nets (providing support for the unemployed).
3. Global Risk Sharing: The US dollar is the global currency, attracting investments from around the world. Even if a tech project fails, the losses are shared by the entire world. This allows the United States to transfer some of the burden to other countries.
For example, Elon Musk’s ambitious projects (like rockets and Mars exploration) are possible because American institutions allow him to take risks without risking his personal wealth; failures can even lead to valuable lessons for future efforts.
Why Can’t China Copy the American Model?
Zhang Xiaojing stated that there are three main reasons why China cannot adopt this model:
1. Risk Thresholds: While the US can tolerate large bubbles and fluctuations, doing so in China could trigger financial risks (e.g., a stock market crash affecting ordinary people). Therefore, China needs to balance tolerance for minor fluctuations with protection against extreme swings.
2. Lack of Global Risk Sharing: The dominance of the US dollar means that China cannot rely on the world to bear the costs of its mistakes.
3. Prevention of “Financialization of Technology: American tech companies (like Apple and Google) often use financial strategies to drive up stock prices based on future AI prospects for quick profits, but China should focus on a strong real economy. Tech companies must first develop solid technologies rather than relying solely on financial activities.
China’s Next Step in Technology Finance: Strengthening Risk Management
China has performed well in the initial phase of financial development (e.g., bank loans to businesses), but it needs to improve its risk management capabilities:
- In the industrial era, finance followed the real economy; in the digital age, finance must “price the future” by assessing the potential value of tech companies and being willing to bear potential losses.
China should focus on developing capital markets and venture capital systems to channel risk-tolerant funds towards tech startups.
How to Build a Chinese Model of Technology Finance?
Zhang Xiaojing suggested the following steps:
1. Change Attitudes: Treat failures as a source of valuable data for innovation, rather than as embarrassing setbacks.
2. Establish Institutions: Improve personal bankruptcy laws, social safety nets, and intellectual property protection to support entrepreneurs.
3. Develop Strong Markets: Encourage more venture capital investment in early-stage tech companies and ensure fair valuations in the stock market.
4. Embrace Risk: Accept the idea that innovation inevitably involves failures and adjust mindsets accordingly.
In summary, China should learn from the American approach of tolerating failure and providing institutional support, while avoiding excessive risk-taking and the financialization of technology. The goal is to help tech companies successfully overcome the challenges inherent in their development process.