Finance plays a pivotal role in promoting the industrialization of technological innovation and achieving the development of new qualitative productive forces. As a supportive tool under the market economy system, finance must first ensure its own sustainable development in order to serve the economic and social development well. In the era of the innovation economy, technology start-ups are the main force behind original and disruptive innovations. However, the risk-return characteristics of such investments are difficult to match with traditional financial models. Equity investment funds, by diversifying risks through investment portfolios and other means, provide an institutional safeguard that "encourages innovation, allows trial and error, and tolerates failure." Therefore, it is recommended to build a sustainable technology financial system with equity investment funds at its core.

Specifically, on one hand, the equity investment fund system needs to be further improved to achieve efficient operation of the entire "raising, investing, managing, and exiting" chain. On the fundraising side, it is necessary to increase the cultivation and supply of long-term patient capital. Currently, pension funds and long-term life insurance are the main ways to accumulate long-term capital in China, while endowment funds and charitable funds are difficult to scale up in the short term. Considering the characteristics of China's financial system, the banking industry should increase efforts to innovate financial instruments, and under the premise of ensuring the stable operation of business, a portion of funds can be transformed into long-term capital. Regulatory authorities can give the market more time for verification.

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On the exit side, currently in China, the further carrying capacity of IPO exits is limited, while the merger and acquisition market and S funds are key development targets. The next step is to continue to accelerate the construction of a diversified and multi-level equity investment exit market.

On the other hand, with equity investment funds at the core, a "equity, loan, bond, insurance"联动的 technology financial service system should be built, efficiently combining new financial infrastructure to empower scientific and technological innovation enterprises in all aspects and throughout their entire cycle.

Building a Sustainable Technology Financial System with Equity Investment Funds at the Core

The Third Plenary Session of the 20th Central Committee of the Communist Party of China proposed to "build a technology financial system adapted to scientific and technological innovation." Building a sustainable technology financial system is an inevitable requirement and an important focus for promoting high-quality development, which will have a profound impact on China's economic and social development. Equity investment funds are an innovative model of financial services in the era of the innovation economy, playing a prominent role in the breakthrough of original and disruptive innovations. Below, I will discuss several points of understanding regarding "building a sustainable technology financial system with equity investment funds at the core."

1. Finance has a key role in the industrialization of scientific and technological innovation.

New qualitative productive forces are an innovative development of Marxist productive force theory, and the industrialization of scientific and technological innovation is the core essence of developing new qualitative productive forces. Finance is the lifeblood of the national economy and an important part of the country's core competitiveness, playing a crucial role in the industrialization of scientific and technological innovation. Looking at the history of global financial development and industrial development, continuously innovating financial service models such as commercial banks, investment banks, derivative tools, financial information networks, and venture investments have provided important support for several technological revolutions and industrial transformations.

At present, a new round of technological revolution and industrial transformation is accelerating, reshaping the global innovation landscape and affecting the competition pattern among major countries. Developing technology finance is not only an important content of accelerating the construction of a financial powerhouse but also a major strategic measure for comprehensively promoting Chinese-style modernization and achieving the great cause of national rejuvenation. In this context, the Central Financial Work Conference held last year proposed to do a good job in technology finance; the Third Plenary Session held this year once again clearly proposed to "build a technology financial system adapted to scientific and technological innovation."II. Finance is a supportive tool under the market economy system and must achieve its own sustainable development.

Finance serves as a supportive tool under the market economy system and must respect the laws of the market economy to achieve its own sustainable development while serving the economic and social development. Only by resolving its own sustainable development issues can finance effectively support the sustainable development of the economy and society; otherwise, it will only bring problems to the economy and society. It will not only fail to support the development of new quality productive forces but also bring risks, affecting the overall development of the economy and society.

The connotation of sustainable development in technology finance includes both the functionality of serving economic and social development and the profitability under the market economy system. The two are parallel and organically unified. The Central Committee of the Party has proposed that "finance has dual attributes of functionality and profitability, and profitability must be subordinate to the function." The financial industry must first play its role, which is the foundation of the financial industry and its core competitiveness. An institution or an industry can only create economic value and share benefits by fully playing its role and being recognized and needed by the economy and society, thereby achieving its own sustainable development.

Having a clear understanding of one's role and function is the foundation for effectively playing a functional role. In the past, some financial institutions have experienced the situation of "cultivating others' fields and neglecting their own," resulting in the failure to play a role, the failure to achieve profitability, and the continuous accumulation of risks, with very painful lessons.

Of course, as commercial entities under the market economy, financial institutions' pursuit of profit is a legitimate behavior, which is blameless and should be encouraged. However, this must be based on their functional performance, such as the insurance industry, which must play its role as an economic shock absorber and social stabilizer, and design products and provide services according to this requirement. In addition, in the construction of a sustainable technology finance system, it is also necessary to improve the corporate governance of financial institutions to provide full protection for sustainable development; and to increase the digital transformation of financial institutions to provide strong support for sustainable development.

III. Equity investment funds are an institutional arrangement to support the industrialization of scientific and technological innovation.

The Third Plenary Session of the 20th Central Committee of the Party instructed to strengthen financial support for technology-based small and medium-sized enterprises and to improve the support policies for long-term capital investment in early, small, long-term, and hard technology. Technology start-ups are the main force of original and disruptive innovation, with strong original innovation momentum, which can greatly enhance China's industrial core competitiveness. However, such investments carry great risks, especially in the forefront of the scientific and technological revolution and the early stages of technological innovation, where the failure rate will be very high, and even result in a complete loss. In addition, technology start-ups also have characteristics such as a high proportion of intangible assets, strong information asymmetry, and negative cash flow for a long period, making it difficult to directly match with traditional finance.

The central leadership has proposed to "encourage innovation, allow trial and error, and tolerate failure," further clarifying the work requirements of technology finance. However, failure is painful for every institution and individual, and it will impact the sustainable development of market-oriented entities. Therefore, only by making adjustments and arrangements in the system and mechanism can we ensure that investors have the confidence and ability to strengthen financial support for technology start-ups.

Equity investment funds, as financial tools, can provide institutional guarantees for scientific and technological innovation and industrial transformation by diversifying risks through investment portfolios. Under the equity investment fund model, even if some scientific and technological innovation projects fail, the overall performance of the fund will still be good, effectively avoiding the impact of innovation failure on investors and institutionally ensuring a continuous flow of long-term capital into technology start-ups.

In addition, in terms of serving the capabilities of scientific and technological innovation enterprises, on the one hand, equity investment funds, as specialized institutions for scientific and technological innovation investment, gather professional industrial technology talents, build an information network of innovative elements, provide comprehensive living guarantees for entrepreneurs, and provide other job opportunities in the investment portfolio for failed entrepreneurs; on the other hand, equity investment funds, through refined division of labor, have formed细分 models such as angel investment, venture capital, growth investment, and merger and acquisition investment, thereby accurately empowering the growth of scientific and technological innovation enterprises at various stages and effectively achieving "relay-style" technology financial services.These all provide institutional support and protection for innovative trial and error. The effectiveness of equity investment funds in supporting science and innovation has been confirmed by the successful experiences of industries such as the internet, biopharmaceuticals, and new energy in our country, and has been proven by the achievements of developed countries. For example, the rise of Silicon Valley in the United States is a strong evidence.

IV. Improve the equity investment fund system to achieve efficient operation of the "raising, investing, managing, and exiting" full chain closed loop

The effective functioning of equity investment funds is inseparable from the optimization and support around the full chain of "raising, investing, managing, and exiting". On the fundraising side, it is necessary to increase the cultivation and supply of patient capital; on the investment side, it is necessary to strengthen the connection between funds and high-quality projects, and ensure long-term investment; on the management side, it is necessary to improve the management system and due diligence exemption mechanism; on the exit side, it is necessary to fully optimize the functions of the capital market, and continuously expand the channels for mergers and acquisitions and reorganizations. Only by continuously improving the equity investment fund system can the "raising, investing, managing, and exiting" full chain closed loop operate efficiently.

Long-term capital is a key booster for the industrialization of scientific and technological innovation. If capital lacks patience, it will undermine the initiative of enterprises to carry out original and disruptive innovations. The Party Central Committee emphasizes the need to focus on solving the problem of insufficient "patient capital" in China's financial system. At present, pensions and long-term life insurance are the most important ways for our country to accumulate long-term capital. Vigorously developing pensions and long-term life insurance can not only further improve our country's social security system but also provide institutional protection for the supply of long-term capital. Other ways such as endowment funds and charitable funds in foreign practices are difficult to form a scale in our country in the short term.

Considering that in China's financial system, funds are mainly concentrated in the banking industry, and traditional banking business is difficult to directly support technology start-ups, the banking industry needs to increase efforts to innovate financial tools, and under the premise of ensuring the stable operation of core businesses, convert a part of the funds into long-term capital. Regulatory authorities should adopt a more encouraging and tolerant attitude, balance the relationship between innovation and risk, and give the market more time for verification.

The key to the efficient operation of the "raising, investing, managing, and exiting" full chain closed loop also lies in the smoothness of the exit channels. Smooth exit channels are the foundation of smooth fundraising processes, the guarantee of increasing the patience of funds, and can promote investment to tilt towards original and disruptive innovation fields.

At present in our country, the further carrying capacity of the IPO exit is limited, and the merger and acquisition market and S funds are the key development objects. In the practice of equity investment funds in Europe and America, mergers and acquisitions are the most important exit channels. According to Preqin data, in 2023, 86% of the exits of global equity investment funds were achieved through the merger and acquisition market and S funds, and only 12% were achieved through IPOs. In addition, as our country's economic development has reached the present, all industries have put forward the requirements for asset integration and optimization, so the merger and acquisition market also has a good development prospect.

Next, we need to continue to accelerate the construction of a diversified and multi-level equity investment exit market. On the one hand, we need to further optimize the functions of the capital market, especially deepen the reform of the registration system; on the other hand, we need to continuously expand the channels for mergers and acquisitions and reorganizations, and cultivate merger and acquisition funds, secondary market funds for venture investment, etc.

V. Take equity investment funds as the core to build a "equity, loan, bond, and insurance" linkage financial service system for science and technology

Equity investment funds have always been in a leading position in the growth of science and innovation enterprises in the early stage, especially in the exploration activities in the field of original and disruptive innovation. The 20th Central Committee of the third plenary session proposed to "accelerate the formation of production relations that are more suitable for new quality productive forces. Encourage and standardize the development of angel investment, venture capital, and private equity investment", which fully explains the core position of equity investment funds in the full cycle of the science and technology financial system.When technology-based small and medium-sized enterprises (SMEs) reach a certain scale, with a certain cash flow, fixed assets, and even profits, other financial instruments can be timely introduced, such as loans, bonds, insurance, and listings. Insurance should play its role in risk management, taking on, hedging, diversifying, and transferring the risks inherent in technological innovation, forming a risk dispersion mechanism for major technological breakthroughs, and developing more insurance products adapted to the risks of technological innovation, such as intellectual property insurance, insurance for the first set of major technical equipment, and insurance for the first batch of new materials.

Technology innovation bonds and loans should work in conjunction with equity investment funds to vigorously promote further growth and prosperity of enterprises after they have matured to a certain stage of development. At the same time, there should be strong support for leading enterprises in the technology innovation industry chain, using leading enterprises as intermediaries to indirectly provide financial support to SMEs in the industry chain. New financial infrastructures such as the Science and Technology Innovation Board (STAR Market), ChiNext, and the Beijing Stock Exchange should also cooperate in providing financing services for technology innovation enterprises.

Therefore, the core meaning of building a sustainable technology finance system lies in taking equity investment funds as the core to form a "equity, loan, bond, and insurance" linked financial service system, efficiently combining with new financial infrastructures, thereby providing comprehensive and full-cycle empowerment to technology innovation enterprises, and effectively promoting a virtuous cycle of "technology-industry-finance".