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New Opportunities for Financial Capital in the Era of Mass Entrepreneurship and Innovation

Released on:2017-09-26


“Mass Entrepreneurship and Innovation” is one of the growing “twin engines” that push forward China economy. Against this backdrop, Shanghai is striving to build a world influential science and technology innovation center. Currently, Jing’an District has concentrated a large group of innovation enterprises. Meanwhile, its finance service sector is scaling up. How to seize the opportunity to highlight its advantage in finance service sector, give full play to the function of financial capital, and promote connected industrial development? In the next five years, Jing’an District will focus on “Mass Entrepreneurship and Innovation”.

Deputy Secretary of the CPC Jing’an District Committee and Mayor of Jing’an District

■ Lu Xiaodong

New Jing’an District has 92% of its tax revenue from service sector. An industrial structure with business service, financial service, professional service, cultural and creative service, and information technology service industries at its core has been formed in New Jing’an District, a merged district of former Jing’an District and Zhabei District. Currently Jing’an District has nearly 1,000 financial institutions of various types, especially headquarters of securities companies, finance companies, asset management enterprises and equity investment firms. Among them, many are world-renowned financial institutions, which are expected to exert their own advantages in “Mass Entrepreneurship and Innovation”. Shanghai Data Exchange Corp. lies in the high-tech park in northern Shanghai, where there are already over 150 cloud computing and big data companies. Jing’an is also actively fostering “four new” economy, focusing on Internet plus, Internet of things, big health, etc. to create new growth points for the regional economy. Jing’an District has scored positive results in such aspects as financial services for entrepreneurship and innovation and connected industrial development.

New Jing’an District, comprising previous Jing’an District and Zhabei District, is a north-south strip-shaped land, stretching 14 km over Suzhou River. During the “13th Five-Year Plan”, the focus of Jing’an development will be “one axis and three belts”. “One axis” refers to a compound development axis centered by transportation—more bridges will be built over Suzhou River besides the existing south-north overpass. “Three belts” are a high-end commercial agglomeration belt on both sides of West Nanjing Road, a cultural and recreational agglomeration belt on both banks of Suzhou River, and a city-industry integration agglomeration belt on both sides of the intermediate ring. The “three belts” in particular will be the focus of Jing’an industrial development.

Jing’an has been shaping a sound climate for innovation and entrepreneurship, accelerating development of sci-tech innovation finance, advancing new pilot projects in financial reform, and promoting integrated development between finance and sci-tech innovation, cultural innovation, big data, etc. Previously established special fund for development of cloud computing and big data industries will better serve quality domestic and foreign equity investment institutions, and attract participation of more social capital and financial capital to contribute Jing’an’s share to the construction of Shanghai global sci-tech innovation center and “four centers”.

Assistant Dean and a finance professor of Guanghua School of Management, Peking University

■ Liu Qiao

In the first 35 years since the initiation of China’s reform and opening up, China saw 620 million people get out of poverty and an annual GDP growth rate of 9.8%. This result partly came from the endeavors of the Chinese government, enterprises and financial system. However, it may be the right time to change the financial system designed for the high-speed development in the first 35 years considering China’s current debt problems and excess production capacity. A supply-side financial reform should be able to help Chinese enterprises increase their efficiency in capital use. We can allocate scare financial resources to the most dynamic and creative sectors of economy in simple, direct, effective and low-cost ways. As thus, China’s financial reform will be a success soon.

As for traditional finance mismatching the “Mass Entrepreneurship and Innovation” pattern, in the long run, new financial businesses should be approved but they should return to the essence of finance—a vehicle that links suppliers and receivers of capital in simple, direct, effective and low-cost ways. Traditional finance does not do well in this regard. Therefore, new financial businesses practitioners should think about this aspect, and calm down to carefully study the features of capital demand in real life, so as to find out corresponding service approaches, products and services. Besides, “Mass Entrepreneurship and Innovation” itself has solid foundation in China. And there will emerge a large group of well-performed financial institutions. Here are two reasons: first, China economy has a long period for growth, 20 or 30 years or even longer. And the process needs innovation, innovation that can truly improve total factor productivity; second, China’s demographic dividend is disappearing, but there are some favorable conditions for economic transformation given the change of population quality. There will be 15 years before 2030. Taking the generation born in the 1990s for example, the generation will contain 400 million people by 2030. That is to say, there will be 400 million strong labor forces aged between 30 and 40 by then. That number is almost equal to the total population of EU. According to current college and university enrollment scale, about 200 million among the 400 million people will be well educated— never seen before in any economies at any a stage in human history. The figure is already 100 million now. The 200 million people will be both investors and consumers, creators. Understanding their demand and preference can be equated with occupying the commanding height of future finance competition.

All the financial institutions now stand at the same starting line. The result depends on whether they can seize the opportunity.

CEO of Roland Berger in global market

■ Chales-Edouard BOUEE

“Mass Entrepreneurship and Innovation” has two magnificent effects: first, as capital becomes an increasingly cheap asset, many countries in the world including China that have sufficient capital are seeking investment opportunities. Second, innovation and technology are quite common. Everybody wants to start up business and succeed. Innovation and technology face reduced cost and enhanced capability to get clients and market through Internet. As capital and innovation pose new challenges, supervision becomes harder. I always stress that credit is a new currency, the most important thing for banks, insurance companies and the government.

Finance sector will enter a new era, driven by capital and technology. Financial service sector must consider how to provide new services and how to seek new opportunities for growth and new technology among the top 500 enterprises to attract capital. Old-brand or normal firms should also consider how to rejuvenate themselves. In general, China’s finance sector is required to reform and transform. Jing’an District can seek suitable businesses, exchange resources and promote innovation by the chance. Meanwhile, Jing’an should also give much importance to talent cultivation, encouraging universities to conduct research and development, nurturing talents needed by the market, and providing government support and financial support.

I think Shanghai or Jing’an District, to be specific, will become a pioneer in fashion, culture and high tech in the future. In addition, financial support is needed to ensure that capital and opportunities can concentrate in Shanghai to make the city a more competitive and trustworthy destination for global big capital.

How to strike a balance between innovation promotion and risk control? For an open market, innovation is the priority because it can make capital flow into the best ideas and technology. The government should be visionary enough to predict public demand and conduct supervision and control. I expect China has such a visionary mind, which is rare worldwide. That’s why good consulting firms are in urgent need. European or American investors have tended to choose China as a destination of starting up business in the past a few years because of our low-cost capital and sufficient liquidity. However, that makes China face risks in supply-side reform. Now, many new technologies change rapidly in a short time. To tackle these risks, we should ensure that those destructive technologies don’t change too fast because our real economy can hardly survive in a rapid change.

Vice President of Guotai Junan Securities Co., Ltd.

■ Yin Xiusheng

On March 5 last year, Premier Li Keqiang added “Mass Entrepreneurship and Innovation” to the government work report as a national economic transformation strategy. That has special historic meanings. Since the foundation of New Jing’an District, the District has taken some good measures to implement the “40 Financial Articles” issued by Shanghai municipal government including technology innovation development. Mayor Yang Xiong highlighted “four active adaptions”, among which the third one is tech innovation and transformation. Securities firms should be dedicated to their main businesses. This is very important. And it is true of people in various positions.

Financing difficulty of medium-, small- and micro-sized enterprises is the core problem facing “Mass Entrepreneurship and Innovation”. In recent years, many local governments, big firms and industry magnates cooperate in setting up certain industrial funds or Angel Fund. This is a good approach, I think. Previously, government financial fund was just like eggs, which were eaten soon. Now, the government gives firms “chicks” and then cultivates them into chicken by establishing a normative corporate governance structure and making professional teams supervise and control them. Social capital and financial capital can play the positive role of serving real economy through such a transition in investment and financing approach.

How to keep a balance between profit and risk control? A prominent feature of investment banks is anxious for profit. It seems that you don’t need to pay a debt or interest in capital market, but the fact is not that easy. Another feature is lack of credit in the whole sector. This is the most prominent problem arising in the process of finance-industry integration. However, we cannot deny it because of a few defects. Suning bought Internazionale Milano. That was impossible for football fans, but it became a fact through capital operation. Suning’s power comes from not only its revenue accumulation. So we should be tolerant and patient in the course of finance-industry integration. According to the statistics this year, New Third Board has witnessed enhanced supervision and control and slowed growth speed. That’s great. Inactive trading has offered a fixed price for trading market and a direct financing opportunity for innovation companies and even defective firms.

Vice President of Xiaomi Technology Co., Ltd.

■ Zhang Jinling

Real economy and finance are both indispensable. Finance would become an empty talk without real economy. China’s real economy will see a boom thanks to “Made in China 2025”. And an indispensable part based on real economy is finance. Finance should be based on an industrial chain. America issues bonds based on mortgage and then new bonds based on the bonds. No things with market value are involved in this process. So finance should be combined with real economy for the sake of showing our awe to finance or risk control. Systematic financial risks should be prevented with simple and transparent financial services. Systematic risks are not individual risks and cannot be completely avoided. It is helpful for later financial risks prevention and real economy to serve the public with financial service tools easy to be understood by common people. Finance is also a product. Financial businesses should be carried out in ways easy to be understood by the public, investors and investees with stable and transparent financial instruments. This is how I understand the relationship between real economy and finance.

As for how to earnestly innovate, I still want to say real economy and finance are interdependent. At the initial stage of entrepreneurship, PE and VC are indispensable because bank loans are hard to get at this time. For PE/VC investors, they also need to help train the entrepreneurship team, find out development direction and define products besides providing money. Initial combination between finance and real economy may appear then. This is beneficial to both financial instruments and real economy. In the mid-term of enterprise development, financial instruments and forms are of crucial importance. Every company, hardware or software, may meet problems in buying and selling raw material, paying wages and confirming sales revenue. These problems are not financial problems or not simply financial problems. To be specific, you’d better keep your money in your pocket as long as possible. Such finance is called supply-chain finance or note discount. So when a start-up enters the mid-term of development, suitable applied financial instruments can push forward its real economy and make its financial statement look great. This is my opinion on applying finance to real economy.

The founder of People Squared (P2)

■ Zheng Jianling

 When it comes to “Mass Entrepreneurship and Innovation”, we have to mention “maker space”, which is novel for most people. They don’t know what exactly it is because they haven’t been to one. From 2010 to 2014, I was often asked: “What do you do?” From 2014 to 2015, I was often asked: “He/She has begun to set up a maker space. Do you know that?” In 2016, I was often told certain maker space began to cooperate with another. Maker space has created much value for entrepreneurs. When you develop a project in a maker space, your neighbors are your departments and your best HR. This is how a maker space works, breaking the walls among teams.

 Maker spaces are changing ceaselessly. Last year, we introduced Global Coworking Unconference Conference (GCUC) from America, where all teams work together and everyone plays his own role. We undertake incubators operation for many funds, including Google. We have signed a five-year agreement with Google. We are responsible for operating its incubators set up in Shanghai and Beijing. In such an ecological chain, we just need to do well what we are adept at. Lots of overseas Internet companies which moved out of urban maker spaces have come back. The biggest problem for start-up companies is how to find partners rather than capital. Urban maker spaces can help them solve many problems of this kind.

Nowadays, “Mass Entrepreneurship and Innovation” is changing the gene of the society. For the teams in P2, they can get down to next project after they finish one. If they fail this time, they can have a second attempt in the next project until they find a successful mode. This is we can offer them as a maker space.

 As for my opinion on fierce competition among maker spaces and lack of good projects, I want to say P2 has incubated more teams than any other space in the past 6 years. Various teams started with two to three people in our space, such as Zuji, Where to Go on Weekend, Jianshu, Zhoumoxing, etc. These teams succeeded getting financing from our P2 and gradually grew up partly because of the atmosphere in P2. The most remarkable function of P2 is connecting people in the space. Now, every member of P2 knows the name of each other. This can be an origin of cooperation. A single developer can hardly do this. So this is the greatest value of a maker space. Thanks to our gains in years, so many teams create more and more added value in our space. Now, nearly 80% of the services offered by P2 are actually provided not by us, but by the teams in P2.

Chairman of the Board of Haitong-Fortis Private Equity Fund Management Co., Ltd.

■ Li Baoguo

In my view, structural imbalance is a global problem and a constant one. All countries may meet such a problem so all strategies offered by macro-economics are around structural imbalance. This is my first opinion.

Second, the current supply-side structure is severely unbalanced. That’s why President Xi Jinping gives so much importance to supply-side structural reform. In supply-side structural reform, we will intensify our efforts to cut overcapacity, reduce excess inventory, deleverage, lower costs, and strengthen areas of weakness. “Cutting” and “reduction” stand for “subtraction” while “Mass Entrepreneurship and Innovation” means “addition”. So “Mass Entrepreneurship and Innovation” is an important measure of China’s supply-side structural reform.

Third, the development strategy of Shanghai includes “four centers”. Another center— “Tech Innovation Center” was incorporated into the strategy in 2015. I think Shanghai has the conditions required— talents, global vision and financial support. Therefore, the “Mass Entrepreneurship and Innovation” in Shanghai should be of higher quality than that in other regions It must be of higher level since it is a national and international strategy.

Fourth, what does “Mass Entrepreneurship and Innovation” need most? Traditional finance plays a limited role in the development of tech innovation enterprises. That is decided by its attribute and risk preference. Globally, what gives tech innovation firms the most support are equity investment such as VC, PE and Angel Investment.

To make its tech innovation a success, Shanghai must attract more Angel, VC and PE funds or their management teams. Capital management teams are the key to implementing “Mass Entrepreneurship and Innovation” and advancing tech innovation.

 How to find the best talents or teams to attract more capital? First, fund management is mostly based on partnership. So career experiences and industrial backgrounds of the whole team make great influence on the industries concerned. Second, people mostly invest in private enterprises or medium and small enterprises. So the procedures of seeking projects are similar. The key is what concept a fund is based on and whether the concept can be continued. This is most significant. Our company has been committed to choosing steadily growing enterprises with the purpose of domestic listing in the past over a decade. Third, for years, we have focused on both profits and social benefits when choosing invested enterprises. We never invest in companies with false accounting or offering poor remuneration to employees.