The #capital market is critical to technological #innovation, noted Xiao Gang, former #CSRC Chairman, stressing the capital market’s role in bridging industrial development and technological advances...1/8
Underpinning industrial developments and competitiveness are technological innovations; all innovations are built upon #R&D which must be supported by adequate capital. Innovations based on original technologies need huge #investment and a long time to materialize...2/8
People would not put their #savings or bank #loans in these risky projects..Only investors who are willing to take the risks in exchange for maximum potential returns would make investment...3/8
In other words, the most innovative projects are also the riskiest - and the most rewarding once they succeed. Only investors in the capital market have such risk appetite...4/8
In theory, the capital market offers a mechanism for investors to share the risks and benefits associated with investment in innovations...5/8
Bank borrowings do not have this function. Contrary to banks who lend based on collaterals and good past performances, equity investors place bets on future growth potentials...6/8
The capital market need to shoulder the responsibility to build an innovation-driven economy and boost technological advances. #Banks only have a limited role to play in this because it would be irresponsible of them to put people’s #savings into too highly risky projects...7/8
Thus, the direct financing function of the capital market and the indirect financing function of banks differ in their underlying logic and operation rules. 8/8
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