Grow Patient Capital, Precisely Irrigate Hard Technology

Xinhua News Agency, Beijing, March 21 — The article “Strengthening Patient Capital and Precisely Dripping Support to Hard Technology” published in China Securities Journal on the 21st states that the “14th Five-Year Plan” clearly emphasizes improving policies for long-term, small, and hard technology investments. This is a strong measure to address the alignment between the natural profit-seeking attribute of capital and the long-term race of scientific innovation.

Recently, as a key hub connecting technology and industry, the capital market is working through coordinated efforts across the “three ends”—funding, investment, and exit—to facilitate a virtuous cycle of “technology—capital—industry.” In the long run, with the continuous improvement of the full-chain service system, this policy combination is expected to encourage patient capital to accompany innovation over the long term, laying a solid foundation for cultivating new productive forces and accelerating high-level technological self-reliance.

(Stock photo. Xinhua News Agency)

Making Capital Dare to Invest Early, Small, and in Hard Technology

“Researching a disruptive technology often requires years or even over a decade of sustained effort. This depends on the dedication of researchers and also on capital that can share risks and not exit prematurely,” said Guo Libo, founder of LP investment advisory. Short-term arbitrage thinking tends to lead capital to avoid high-risk, early-stage hard technology fields, which is the core issue behind the previous difficulties and slow financing of sci-tech enterprises. The key to solving this problem is to cultivate and strengthen patient capital, improve institutional mechanisms and ecological construction, enabling capital to break free from short-term gains and resonate with the growth cycles of sci-tech enterprises.

From the perspective of financial system compatibility, China mainly relies on indirect financing, with bank loans favoring collateral and stable cash flows, which are difficult to match with the asset-light, high R&D characteristics of hard tech companies.

Tian Xuan, a distinguished professor at Peking University, analyzed that disruptive innovation requires breakthroughs from 0 to 1, and direct equity financing is more suitable for this. To strengthen the foundation of sci-tech finance, it is necessary to vigorously develop direct financing, strengthen the equity market, and build a modern financial system highly compatible with technological innovation.

The formation of patient capital depends on a stable policy environment and a healthy return ecosystem. Those truly capable of accompanying hard tech growth are not short-term speculative funds but entities with long-term attributes and professional perspectives, such as government-guided funds, pension funds, insurance capital, and professional venture capital institutions.

Zhao Gege, chief macro analyst at Everbright Securities, believes that strengthening patient capital aims to guide long-term funds like insurance and pension funds into the market, changing the market’s short-term orientation; in the future, further relaxation of institutional constraints may be implemented to encourage increased equity allocations by patient capital.

“Three Ends” Coordinated Promotion

Recent policy deployments have formed a clear “roadmap” for developing patient capital, focusing on coordinated reforms across the “three ends”—funding, investment, and exit.

The funding side focuses on “activating water,” leveraging policy tools to attract social capital and ease early-stage sci-tech enterprise financing constraints. The government work report this year explicitly states that “government investment funds should lead in developing patient capital,” defining the core direction for funding efforts.

Tian Xuan said that local governments should implement the positioning of government investment funds as providers of patient capital, focusing on long-term goals such as technological innovation, industrial upgrading, and regional coordination. Priority should be given to strategic hard tech projects and specialized, innovative enterprises. Additionally, mechanisms and systems in market operation, fault tolerance, due diligence, exit mechanisms, and other areas should be strengthened to improve fund operation efficiency and sustainability.

The investment side emphasizes “strong linkage,” broadening sources of medium- and long-term venture capital through multiple channels, and leveraging the leading role of national funds.

At the Fourth Session of the 14th National People’s Congress, the National Development and Reform Commission stated that it will work with the Ministry of Finance, the People’s Bank of China, and other departments to establish a national M&A fund, further smoothing exit channels for venture investments, improving capital turnover efficiency, and guiding over 1 trillion yuan in various funds.

Yang Chao, chief strategy analyst at China Galaxy Securities, believes that from an industry perspective, the establishment of national M&A funds is expected to foster competitive leading enterprises through mergers and acquisitions.

The exit side focuses on “smooth circulation,” expanding venture capital exit channels to solve the long-term capital dilemma of “investment in, but no exit.”

Li Qiusuo, chief analyst of domestic strategy at CICC, said that recent regulatory proposals to further expand private equity and venture capital fund exit channels will reshape the asset supply pattern of A-shares. Expanding exit channels for private equity and venture funds will help related institutions more smoothly realize capital recovery, continue investing in early-stage tech companies, enhance the supply of innovative capital, and facilitate the cycle of “technology—capital—industry.”

Continued Optimization of the Full-Chain Service System

From a long-term perspective, the policy orientation of “supporting excellence and supporting science” is becoming clearer, with resource allocation increasingly favoring high-quality sci-tech enterprises. A more multi-layered, adaptable financing system is gradually taking shape.

To better serve new productive forces, experts suggest focusing on core tracks of new productive forces and building a comprehensive full-chain service system for innovative startups.

Zhao Ran, chief analyst of non-bank and fintech at CITIC Construction Investment Securities, recommends establishing a “green channel” mechanism for listing, M&A, and restructuring of key core technology enterprises, proactively deploying in critical sectors such as hard tech, new business models, new consumption, and modern services. This would create a full-cycle service loop from early venture linkage, Pre-IPO cultivation, IPO underwriting, to refinancing and M&A advisory, closely connecting with national M&A funds, smoothing venture exit channels, and unlocking business growth throughout the enterprise lifecycle.

Cultivating top-tier venture capital institutions to enable precise matching of patient capital with hard tech assets is also a key part of optimizing the full-chain service system.

Yuan Guohua, chairman of Shanghai Guotou, believes that more top-tier VC institutions should be cultivated to serve as key links between capital and industry, primary and secondary markets, making investment cycles more compatible with enterprise development cycles, and promoting more technological innovations to yield industrial results.

It is worth noting that nurturing patient capital is a systematic project that requires not only innovation in primary market mechanisms but also coordinated functions of secondary market financing.

Tian Xuan suggests optimizing policies for long-term funds entering the market, relaxing restrictions on the proportion of equity investments by social security and insurance institutions, and establishing assessment mechanisms aligned with long-term return objectives.