between beijing and shanghai ③｜lu yifeng: the underlying logic of technology finance is commodity finance
2024-09-01
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editor’s note
"see shanghai in beijing", "the paper afternoon tea/between beijing and shanghai" series was officially launched on may 17, 2024. "between beijing and shanghai" aims to analyze central policies and explore shanghai's ideas.
the first seminar discussed shanghai's strategy in china's economic transformation; the second seminar focused on the construction of an international financial center; and the third seminar focused on technology finance.
at the third seminar, we invited zhang ming, deputy director of the institute of finance of the chinese academy of social sciences, su jingxiang, retired researcher of the china institute of contemporary international relations, cao shengxi, associate researcher of the institute of finance of the development research center of the state council, han bing, associate researcher of the institute of world economics of the chinese academy of social sciences, chen mingyi, associate researcher of the institute of economics of the shanghai academy of social sciences, lu yifeng, senior deputy manager of the precious metals and commodities business department of china construction bank, xu yayun, general manager of shanghai da zero bay investment development co., ltd., and kong rong, chief global technology analyst of tianfeng securities.
the following is the essence of lu yifeng’s speech. lu yifeng shared the four elements of science and technology finance and the three major challenges in developing science and technology finance.
lu yifeng, senior deputy manager of the precious metals and commodities business department of china construction bank, believes that the essence of technology finance is to judge the future, and such predictions are usually accompanied by high risks, high returns and high volatility.
four elements of tech finance
science and technology finance includes four elements: science, technology, entrepreneurship and finance. without any one of these elements, it is difficult for an enterprise to grow bigger and stronger.science focuses on the discovery of principles; technology studies how to apply scientific principles to create usable value; entrepreneurship involves the industrialization of science and technology to ensure its sustainable development; finance acts as a catalyst to help social capital invest in technological entrepreneurship and expand the scale of the industry.
finance should balance risk, operation and value, rather than just evaluating the output value of technology. disorderly output value may bring negative impacts, such as the sharp fluctuations in lithium carbonate prices. if finance and futures can balance the market, price fluctuations will be reduced and the damage to the industry will be reduced.
the traditional financial system decides whether to provide resources based on the actual situation of the enterprise, while technology finance focuses on the attributes of technological innovation and needs to evaluate the leading edge of technology, technical thresholds and iteration cycles. the continuous iteration of technology affects the path and methods of industrialization of enterprises. for finance, the attribute of technological innovation is technological credit, and banks rely on credit to balance value.
finance should act as a catalyst to encourage social capital to flow into technology startups and expand the scale of the industry. finance needs to balance risk, operation and value, and avoid relying solely on output value evaluation technology. disorderly output value may bring adverse effects, such as the sharp fluctuations in lithium carbonate prices. if the financial and futures mechanisms are appropriate, market prices will be more stable and the damage to the industry will be reduced.
three major challenges in developing technology finance
there are three main challenges in developing science and technology finance.the first is the liquidity problem, which involves intellectual property rights, science and technology credit carriers and equity of scientific and technological enterprises.the core of technological innovation lies in the creation and application of intellectual property rights, and the liquidity of these intellectual property rights is crucial. the existing technology financial market often faces difficulties in the evaluation and transformation of intellectual property rights, especially in terms of liquidity. the equity and intellectual property transaction and financing mechanisms of technology companies are still imperfect, leading to financing difficulties and insufficient market liquidity.
the second problem is compatibility. the essence of technology finance is to judge the future, and such predictions are usually accompanied by high risks, high returns and high volatility.however, traditional financial institutions prefer to invest in low-risk, stable-return areas, and there is a natural contradiction between the two. the high-risk characteristics of technology finance make it difficult to effectively apply traditional financial instruments, and innovative financial instruments are needed to balance this risk. however, due to liquidity problems, the establishment and use of these instruments are currently restricted. the lack of financial instruments makes it impossible to effectively control the risks of technology finance, thus affecting the overall development of technology finance.
the third problem is the problem of income volatility. technological innovation and investment in technological enterprises are often accompanied by uncertainty in income, so effective financial tools are needed to reduce income volatility.for example, hedge funds played a role in the us subprime mortgage crisis by splitting and combining assets to form new products. in the field of technology finance, to solve the problem of return volatility, it is necessary to solve the compatibility problem, which involves a whole set of financial asset models or a combination of existing financial products. only when the compatibility problem is solved can the problem of return volatility be effectively controlled.
the underlying logic of technology finance is commodity finance
taking commodity finance logic as an example, the financial operation of bulk commodities involves multiple links. from the bottom layer, the order at the time of ordering, the spot order after receiving the spot, the warehouse receipt stored in the warehouse and the waybill during transportation are all different financial manifestations. to put it more specifically, the order corresponds to the contract and commercial bill, the spot corresponds to the bill of lading and value-added tax invoice, and the warehouse receipt corresponds to the owner's document, warehouse management document and insurance policy. for enterprises, these documents and documents need to be converted into commercial credit. after approval by the bank, the commercial bill can be converted into a bank acceptance bill, the bill of lading can be converted into factoring, and the corporate credit can also be converted into bank credit. after the corporate credit is converted into bank credit, the enterprise can generate a variety of financial products, including securitized products such as equity, bonds and asset-backed securities. the key to commodity finance is that the link from spot to document must maintain the continuity of credit, otherwise once a problem occurs, it may form non-performing assets.
the underlying logic of technology finance is similar to commodity finance. the foundation of technology finance is intellectual property and the trading market of intellectual property. in technology finance, the status of intellectual property includes buyout, licensing, independent research and development, update and iteration, etc. these intellectual property rights need to confirm the property rights when they are stored and traded.for technology companies, the reserve and authorized use of intellectual property rights are also important. after forming intellectual property rights, enterprises need to obtain commercial credit certification, and commercial credit must be converted into bank credit. this process is collectively referred to as technology credit. the effective solution of technology credit will provide a solid foundation for the subsequent development of technology finance.
the concept of green finance can help us understand the positioning of science and technology finance. in green finance, the bottom layer is the carbon trading market, and carbon finance is developed based on quantitative standards. the carbon rights owned by enterprises need time to be consumed, and the monetary value of carbon rights in time is generated by carbon finance. carbon finance is combined with green credit, the development of green bonds, etc., to form a large range of green finance. in this framework, carbon trading is the bottom layer, the middle layer is the market, and the top layer is data. the bottom layer data of commodity finance is composed of technologies such as blockchain, which can track the historical status of enterprises.
similarly, the underlying layer of technology finance is intellectual property and its trading market. through intellectual property transactions, technology companies can use the technology capital market, including equity, debt, venture capital and venture capital, to support technology finance.the ownership and use rights of intellectual property can be separated, thus providing more liquidity for technology finance. the existence of secondary markets (such as equity and debt) can form a liquid market and solve the liquidity problem. around this liquidity, banks can provide financing support, including insurance, factoring and indexes, which have formed a mature financial system that can be directly applied to the practice of technology finance.
the top level of science and technology finance is policies and rules, and the middle level is the secondary market.the underlying focus is on intellectual property technical standards and data quality, which is a key part of the development of science and technology finance. if the logic mentioned above is true, the infrastructure of science and technology finance depends on the management of intellectual property rights. at present, banks basically rely on lists issued by the national or local governments in science and technology innovation finance investment, which include some science and technology innovation enterprises. the government list is used as an investment reference, but it may ignore the actual operating conditions of enterprises and projects.
in this context, mrv (footprint quantification) represents a method to quantify the effectiveness of enterprises and projects. this quantification can be used to evaluate the value of intellectual property and its licenses. once an effective system is formed, intellectual property and licenses can be traded in a market-oriented manner and have actual market value. financial institutions can be responsible for the management of intellectual property assets in this regard. at present, financial operations have only completed the stage from project enterprise investment and financing to asset credit investment and financing. in the future, it is necessary to further improve and expand all aspects of science and technology finance.
how do commercial banks evaluate science and technology enterprises?
when commercial banks judge whether a sci-tech enterprise is worthy of financing and the financing amount, they mainly rely on the following criteria:first, the advancement of intellectual property rights, technical background, iteration cycle and autonomous controllability.these factors help assess the promise and long-term value of a technology.
second, the business model.although many science and technology enterprises are strong in technology development, they lack industrialization experience and the ability to form commercial value, which increases the risk of enterprise failure. banks focus on the effectiveness of the business model and regard this part as the safe value of investment. business model investment can usually be regarded as advertising fees, used to "occupy the market" rather than directly focusing on returns.
third, the resumes of core scientific and technological personnel.the background and capabilities of the team are critical to the success of the business and are therefore an important part of the bank’s assessment.
when investing in science and technology enterprises, banks require that at least three of the four factors be met, and consider the life cycle of intellectual property, the potential of the business model, and the effectiveness of the core technology. if the enterprise performs poorly in these aspects, financing is more inclined to the inclusive loan model.
based on this evaluation standard, i thinkthe future development of science and technology finance faces three major difficulties. the first is the construction of the intellectual property market infrastructure. without an effective market, the development of science and technology finance is difficult to achieve. the second is standardization, including how to evaluate science and technology enterprises, the application of digital technology and the construction of financial standardization. the third is data governance, which involves the sharing and standardized governance of technical data.
at the same time, technology finance has a life cycle, and banks are not suitable for premature involvement in venture capital or angel rounds.although it is possible to operate at these stages, large-scale entry usually takes place when the company's technology threshold and business model are relatively mature. banks should intervene when venture capital and venture capital exit, when the company has technological advantages and business models.
finally, coordination issues need to be considered.commercial banks hold trusts and funds, and overall coordination is crucial to the development of technology finance. the professional operating model under the market-oriented mechanism in the united states contrasts with the passive market-oriented mechanism under china's separate supervision, which also affects the operating model of technology finance.
lu yifeng/ccb precious metals and commodities business department senior deputy manager xie qiuyi/compiled
(this article is from the paper. for more original information, please download the "the paper" app)
