The focal topic for today’s forum is searching new economic growth points. We have just carefully studied the speech by Xi Jinping, General Secretary of the CPC Central Committee at Academicians’ Conference on June 9, 2014. Our experience indicates that the new economic growth point lies in technological innovation, acceleration in transformation toward innovation-driven development model. This requires, on one hand, that we accelerate scientific and technological reform and improve the national innovation system. On the other hand, it is imperative for us to enhance the market’s power in resources allocation. In this regard, the capital market shall strengthen its capacity to meet the requirement to support scientific and technological innovation.
Venture capital and the multi-tiered capital market form an upper-lower-stream relationship. Venture capital may be described as extension of the capital market. According to statistics, the SME Board and the ChiNext Market, home to more than 1,000 listed companies, has seen introduction of pre-listing venture capital by over 500 listed companies. The venture capital firms’ ability to select, incubate and foster start-up companies, to a large extent, determines the efficiency of capital markets to serve technological innovation. Early-stage venture capital investment provides the critical boosting power for technological innovation projects, large-scale production and commercialization. Besides providing funds, venture capital firms also bring value-added services. For example, venture capital can help companies integrate external sales channels, marketing and human resources, turning technological advantage into competitive edge in a short time by speedy and practical commercialization. Thus venture capital helps start-up firms break through the Death Valley for early entrepreneurship. In addition, the early start-ups usually have neither the ability nor the incentives to standardize management practices. Thus the introduction of external venture capital, which requires more rigorous standards of compliance and corporate governance, often provide targeted assistance. This compliance assistance is very important for enterprises’ ensuing development and growth, restructuring and share issuance.
Currently, authorities and professionals at all levels of the capital market are stepping up efforts to implement the new nine-article guideline to promote development in the capital market. For a first time, a national guideline dedicated a special provision as concrete plans for developing the private financing market. The Shenzhen Stock Exchange, in accordance with the deployment of the China Securities Regulatory Commission in its 11 Measures, focuses on accelerating development of the multi-tiered capital market and vigorously promotes market reform and innovation. I believe that such moves will create a favorable market environment to foster venture capital services. We will continue to strengthen the SME Board, accelerate reforms in the ChiNext Market and open up the ChiNext’s listing channel for Internet and hi-tech firms that have yet to make profits. Such reforms will be conducive to the smooth connection and transition between venture capital and the multi-tiered capital market, guiding venture capital firms to channel more investment into growth and innovative enterprises in emerging industries. We will further implement the Opinion of State Council on Further Optimization of Market Environment for Corporate Mergers and Acquisitions (Guo Fa No. 14). We will intensify services for mergers and acquisitions (M&A) in multiple aspects including regulation, innovation and services. Powered by both economic restructuring and policy support, mergers and acquisitions of listed companies have witnessed expansion in scale. Mergers and acquisitions are becoming a new channel for venture capital and capital markets to converge. In 2013, the Shenzhen-listed companies disclosed 324 cases of M&A involving 195.2 billion yuan (USD 31 billion), representing an increase of 68% over the previous year. In particular, the SME Board and ChiNext Market saw increases of 116% and 130% respectively. We will also actively support development of the OTC markets, amplifying exchange market’s leading and synergizing role. As our earlier practice indicates, the role of the OTC market in promoting development of enterprises’ credit information platforms is increasingly evident. In particular, regional equity markets centrally showcase a wider range of SMEs. Such platforms not only help recognize equity ownership and restore the right of transfer, but also reduce the search and due diligence cost for venture capital firms, facilitating the transfer of projects backed by venture capital
With implementation of the nation’s innovation-driven development strategy, a new round of technological innovation boom is about to emerge. People from all walks of society pay increasing attention to the role of venture capital. The State Council recently decided to substantially increase the national Venture Fund of Funds and guide social capital to invest in venture capital funds. This is a means to take full advantage of the venture capital’s market operation model to improve efficiency of public funds and their guiding effect. We expect more financial, technological funds will be invested by means of venture capital, which will undoubtedly galvanize the venture capital industry.
Besides, reforms in administrative system of science and technology have given an increasing number of scientific and technological achievements access to the capital market, expanding the platform for venture capital. For example, we noticed that this year some local authorities took the lead in reforming the right to proceeds in disposing scientific and technological research achievements. By delegating the power of disposal to research units, they hit nail on the head in the reform. There are two prominent problems in commercialization of research results. First, most of the research institutions are public institutions, producing mostly research results from part of their duty. As a result, research units must report to the government for approval in capitalizing research results. Most people feel that it is generally difficult and time-consuming to apply for such approvals. Second, share incentives for researchers tend to be low and arbitrary in interest distribution in the process of capitalizing research results. This is not conducive to fully mobilize the enthusiasm of researchers. A lot of good research achievements lie unnoticed the laboratory for lack of integration with venture capital. Opportunities are lost for turning research results into actual entrepreneurial innovation.
Shenzhen concentrates many venture capital firms. At the end of 2013, Shenzhen had 8862 registered equity funds of different types with total registered capital worth 294.5 billion yuan (47 billion USD). Thanks to Shenzhen’s sound liberal market environment and active creative industries, over 110 enterprises in Shenzhen have listed shares with the SME Board and the ChiNext Market. Rapid development in venture capital has effectively promoted the upgrading of Shenzhen’s high-tech industry and local economic transformation. Recently, Shenzhen has been approved to develop the National Innovation Demonstrative Zone. The venture capital industry is expected usher in a broader space for development. The multi-tiered capital market is rooted in the fertile soil of Shenzhen. The Shenzhen Stock Exchange has made considerable progress in establishing the multi-tiered capital market. We have created a mechanism for positive interaction between the multi-tiered capital market and venture capital. As a next step, we will strive to improve the multi-tiered capital market with a sound structure and complete functions, thus boosting the venture-capital industry and jointly implementing the nation’s innovation-driven development strategy. In the process, we will promote enhancements of technological content and core competiveness in listed companies and candidate issuers, helping improve their ability to return to investors.