‘Patient capital,” a term used to describe long-term investment prioritizing sustainable growth alongside financial returns, is gaining prominence in China.
During a meeting of the Political Bureau of the Communist Party of China Central Committee on April 30, the Party’s highest-ranking officials underscored the importance of promoting patient capital, sparking interest in both domestic and international capital markets.
Regulatory agencies such as the China Securities Regulatory Commission are actively working to formulate and improve policies that facilitate the creation and growth of patient capital. These efforts include advancing investment-side reforms, diversifying sources of medium- and long-term funding, increasing the proportion of equity investments, and implementing long-term evaluation mechanisms. The aim is to bolster the stability and efficiency of the capital market while supporting the country’s long-term economic development as well as innovation in science and technology.
Patient capital, as an emerging form of funding, is important in driving economic restructuring, nurturing innovation in science and technology, and propelling the growth of emerging industries within the current economic landscape.
Within the bigger context of China’s modernization, the allocation of capital is crucial. Encouraging increased market participation of long-term capital fosters a symbiotic relationship between the capital market and the real economy, supporting sustained growth in the real economy.
What’s more, this type of capital provides a stable funding source for nascent science and technology ventures and emerging industry enterprises. These ventures often require substantial initial investments, involve prolonged research and development cycles, and require more time to grow. Short-term profit-driven capital falls short in meeting the unique demands of science and technology innovation and the development of emerging industries.
Patient capital can withstand market fluctuations. In the event of a market downturn, the countercyclical nature of patient capital can provide stability and reduce excessive volatility. Such stability not only benefits investors, but also allows for the sound development of the entire economy. By reducing short-term speculation, patient capital helps build a more mature and sound capital market.
Right now, many innovation-driven enterprises in China are in dire need of investment, which essentially falls under the category of venture capital. The basic principle of venture capital revolves around the aspects of limited liability and patience, necessitating assessments that extend beyond individual projects.
Venture capitalists understand that startups and innovative ventures may take time to grow and become profitable, and so they are willing to wait longer to see returns on their investments. But unlike the well-established venture capital market in the United States, China is still in the early stages of developing its venture capital landscape.
To strengthen patient capital, China has introduced several measures. These include offering tax incentives, streamlining the regulatory framework, encouraging long-term investments and creating a market environment conducive to sustained investment, as well as establishing a basic system that supports long-term financial commitments.
By implementing these institutional changes, the goal is to draw in more long-term capital to the market and promote the development of patient capital. Potential sources of patient capital include medium- and long-term private equity funds, as well as other long-term investment vehicles such as social security funds, pensions, annuities, and industrial capital. Also, allowing international venture capital firms to enter the Chinese market could present a mutually beneficial opportunity to strengthen patient capital within China.
Patient capital becomes increasingly important as the economy grows and the market environment evolves. It is expected to take on a more important role in promoting science and technology innovation in the future, supporting the development of emerging industries and promoting the stability of the capital market.
As the policy environment and market mechanism progress, the scale and influence of patient capital will continue to grow and in turn support the sound development of the Chinese economy. –The Daily Mail-Beijing Review news exchange item
