A leading Chinese financial expert has pointed to equity investment by commercial banks as an effective means of resolving the financing difficulties of small businesses.
“Driving the substantive implementation of trials for equity investment by commercial banks can resolve the [issue] of equity investment that is most needed by micro and small-enterprises (MSE’s),” said Zhang Xiaohui (张晓慧), head of the People’s Bank of China School of Finance at Tsinghua University, on 12 September at the China Finance 40 Qujiang Forum.
“In life-cycle terms, the funds that MSE’s need most during their initial founding period and growth period are equity investments, and not debt investments.”
Zhang allowing commercial banks with robust capital level to undertake equity investment will be of definite benefit to the growth of MSE’s,.
Zhang further pointed out that as compared to other forms of social capital which are “short-term and profit-seeking,” the investment time preferences of commercial banks are longer-term, and better able to support the long-term stable operation of businesses.
The “integrated resource capabilities” of banks can also help to establish “comprehensive service platforms” for businesses that bring together other parties to expedite their development, including industry investors, consulting forms, factoring companies and insurers.
For this reason Zhang called for the China Banking and Insurance Regulatory Commission (CBIRC) to expedite the implementation of the “Guidance Opinions Concerning Support for Banking Sector Financial Institutions to Expand the Vigour of Linked Investment and Lending Trials for Innovative Tech Enterprises” (关于支持银行业金融机构加大创新力度开展科创企业投贷联动试点的指导意见).
This will include hastening approvals of the establishment of domestic investment subsidiaries by trial banks, expanding the trials to cities where tech companies are more concentrated, such as Shenzhen and Xi’an, and allowing banks with more ample capital to engage in equity investment based on set percentages.
Zhang also called for making ample use of the Shanghai STAR Board as an “incubation and withdrawal mechanism”, and for relevant departments to contribute capital to the establishment of small and medium-sized enterprise equity investment funds or parent funds.