Dear colleagues and distinguished guests:
Good morning.
This is the fourth year that we hold the Western China Hi-Tech Industry & Financial Capital Matchmaking Forum. Over the past five years, the forum has not only yielded fruitful results in linking up investors with fund-seeking entrepreneurs, but also served as a platform to broaden mind, exchange ideas and deepen understanding. Just recently, listed companies completed their disclosure of 2013 annual reports and Shenzhen Stock Exchange (SZSE) has conducted a comprehensive analysis of the data contained in the reports. Here, I’d like to share my views on the theme of the forum with you from the following two aspects based on the performance results of listed companies.
Firstly, as industrial restructuring continues to deepen, China’s hi-tech industry has embarked on the track of fast development and yielded good results with the backing from the capital market, which further boosted our confidence to combine technology with capital.
Of all the 1578 listed companies on SZSE, 1021 are state-level hi-tech enterprises spanning almost all sectors of the hi-tech industry. According to a strict classification standard, 532 are in strategic emerging industries and are representatives of the hi-tech industry. Our analysis of the annual reports shows that these companies have the following distinctive trends:
First, rapid revenue growth and high profitability. In 2013, SZSE-listed companies recorded an average revenue growth of 11.7% year on year; listed companies in the hi-tech industry reported an average revenue growth of 15.3%. The 532 listed companies in strategic emerging industries registered an average sales gross margin of 24%, higher than the average level of 20% for all SZSE-listed companies.
Second, robust fixed asset investment from emerging industries. In 2012, the fixed asset investment of SZSE-listed companies dropped 6.6%. In 2013, their fixed asset investment recovered and rose at an average rate of 1. 7%. The fixed asset investment of the 532 companies in strategic emerging industries totaled RMB 142.5 billion, up by 13.3% year on year. In particular, the growth rate of fixed asset investment of computer, communications and other electronic equipment manufacturing industries was up to 35.3%.
Third, impressive innovation input and capability. In 2013, SZSE-listed companies invested a total of RMB 133.6 billion in R&D, with an average R&D intensity of over 4.6%. The 532 companies in strategic emerging industries had an average R&D intensity of 7.3%. With the growth of financial strength and management capability after listing, their scientific innovation potentials were inspired and some enterprises have become technological innovation centers driving the development of their industries.
Fourth, enhanced capability to expand through M&As. In 2013, SZSE-listed companies completed 324 M&A and restructuring deals, involving nearly RMB 200 billion, up by 68% over the previous year. The value of M&A and restructuring deals involving companies listed on the SME Board and ChiNext Market were up by 116% and 130% over the previous year respectively. These M&A and restructuring deals were dominantly driven by industrial upgrading and introduction of technology and talents.
Secondly, from the perspective of SZSE as a front-line self-regulatory organization, a few breakthroughs are being made that will accelerate the combination of technology with finance and should be the focus of our current efforts.
First, expediting the development of the multi-tiered capital market system to provide a multi-level market platform for the combination of technology with finance as well as a diversified carrier for financial products. In recent years, the multi-tiered capital market system has gradually taken shape. It linked up the enterprises at different growth stages and adopting different growth patterns with the capital market and played an increasingly significant role in supporting the hi-tech industry. On May 9 this year, the State Council released the Several Opinions on Further Promoting the Sound Development of the Capital Market (short as “the new Nine-point Opinions”) which required accelerating the development of the multi-tiered capital market, expanding the Main Board and SME Board, speeding up ChiNext reforms and enhancing the institutional arrangement for the development of innovative growth enterprises. The new Nine-point Opinions also required improving the National Equities Exchange and Quotations system (OTC Market) for SMEs and incorporating the regional equity markets in the multi-tiered capital market system. With the launch of these measures, there are bound to be new breakthroughs in the service scope and depth of the capital market to the hi-tech industry. For example, initiatives such as reforming the ChiNext, unveiling new ChiNext IPO and refinancing rules and developing tailor-made institutional system for innovative growth enterprises will bolster support for emerging industries. To hi-tech enterprises, it is especially important to incorporate the regional equity markets in the multi-tiered capital market system, extend services to the large number of hi-tech enterprises that are still in their infancy, and offer them valuable venture capital and entrepreneurship guidance at the very beginning by professional intermediaries and investment institutions. We have a deep understanding about this as we have participated in the establishment of Chengdu Equity Trading Center. The synergy effect of the multi-tiered capital market will allow regional equity markets to play an even greater role and reach more local tech and venture firms.
Second, improving the institutional arrangement for capital contribution in the form of scientific and technological achievements and creating more basic conditions for enhancing the market-driven mechanism of combing technology with finance. The practice of capital contribution in the form of scientific and technological achievements will create an equity-based mechanism for affirming the ownership of scientific and technological achievements and assigning benefits as well as an industrial application-oriented mechanism for evaluating the quality of scientific and technological achievements. It will also help create a mechanism for allocating scientific and technological resources and transferring and applying scientific and technological achievements, with enterprises as the main body and the capital market as an important platform. This year’s government work report put forward a specific requirement to expand the pilot reform policies implemented in independent innovation demonstration zones, such as equity incentives and the right of disposition of and the right to the earnings of scientific and technological achievements, to more science parks and scientific and educational units. On March 26 this year, Premier Li Keqiang also suggested during his visit to Shenyang that enterprises should arouse the innovation vitality of the scientific and technological personnel by granting them equities. Experience from the ChiNext, which is dominated by hi-tech companies, tells us that granting equities to scientific and technological personnel has an apparent effect of enhancing corporate performance. In 2012, China Securities Regulatory Commission (CSRC) and the Ministry of Science and Technology jointly released the Guiding Opinions on Supporting Equity Contribution by Scientific Fruits and Identifying Equity (short as “Guiding Opinions”). Around the release of the Guiding Opinions, the CSRC and stock exchanges investigated enterprises, investment banks and hi-tech parks and identified quite a few obstacles in the way of using scientific and technological achievements as capital contributions. For example, this practice involves many links such as right affirmation, assessment and pricing as well as many departments, which calls for more operational implementing rules that covers all links and can coordinate different departments. Over the past few years, various departments have rolled out a slew of policies and rules aimed at regulating or encouraging this practice. But such policies and rules are scattered, less coordinated and sometimes conflicting. At present, we should quicken institutional reforms in this area to facilitate transformation of scientific and technological achievements and enhance the competitiveness of listed companies.
Third, actively exploring an equity structure that is suitable for tech enterprises. After listing or during corporate expansion following listing, with the increase of equity size, there exists a problem that key founders of enterprises might lose their control as a result of equity dilution. The recent Alibaba’s proposed listing has made this problem more prominent. During the development of the SME Board and ChiNext, we have contacted some R&D-driven enterprises that have strong technological innovation abilities. Their founders had begun pondering over the issue of control right as early as they considered whether to go public or not. Among enterprises already listed, some have realized rapid expansion through M&As in recent years and they still have a lot of M&A opportunities. However, if they continue to expand like that, the founders are likely to lose control of the enterprises. Of course, the dual-class structure might have negative effect on investor protection. But our institutional design can be more flexible to accommodate the characteristics of tech enterprises. For example, when revising the Company Law and Securities Law, we can consider leaving some space for the dual-class structure in light of the enterprises which are founded by technological personnel and whose growth is driven by innovation.
Fourth, paying attention to scale effect when building technological and financial service platforms. In recent years, many service platforms for tech enterprises have been established across the country, hoping to integrate the financial resources from all sources to provide one-stop service for enterprises. SZSE has participated in the construction of some of these platforms. We have a dedicated team that tracks the development of these platforms. Their study shows that the existing platforms are too scattered, which hinders the extension of service scope and the improvement of service quality. They hope that all parties make full use of new technologies such as the Internet to consciously strengthen integration of various platforms and information sharing so as to give play to the effect of resource agglomeration. This is their suggestion and I’d like to take this opportunity to share their suggestion with you for reference.
Finally, I wish this year’s forum a great success.