New legislation in Beijing will enable a number of commercial banks in China to invest in technology firms, the government has revealed. According to a recent press release, the country is planning to launch a pilot programme which enables select banks to establish equity investments to take direct stakes in technology products and services.
The move has been planned in order to offer lenders the chance of investing in one of China’s primary growth industries while proposing a greater degree of competition among private equity players.
Investment and Loan Linkage
Historically, China’s existing commercial banking legislation didn’t allow banks to invest in equities other than banking institutions, with exceptions cleared through a government application. The pilot programme is scheduled to commence this year, overturning previous regulations. The pilot, called the ‘Investment and Loan Linkage Mechanism’, will be approved by the State Council of China, opening opportunities for technology investment.
While the scheme is currently being cloaked in secrecy, a government official has released the information, though is not currently authorised to disclose any further details of the planned change.
Banking Regulation Changes
As a result of the embargo on disclosing further details, the banks selected to take part in the pilot are yet to be identified, and a government spokesperson suggested that full details of the firms concerned are yet to be finalised.
The pilot will bring China’s technology sector additional financial support, boosting existing investments permitted through venture capital, foreign investment banks and private equity firms.
According to a Reuters spokesperson, Chinese bankers are seeking to adopt the financial model which is currently effective in Silicon Valley. While this investment may carry risks, it also can lead to highly lucrative outcomes should start-up tech businesses flourish. Many firms are choosing to continue to invest in less risky ventures, through firms such as Robert Stones Target Markets Robert Stones Target Markets have seen a steady rise in property investments, suggesting the industry provides more stability for investors.
Despite Chinese banking firms welcoming the pilot, there is still concern that the revised model will be less than ideal. The investment model brings a high level of risk to banks, as while equity investors benefit from increasing valuations, the bank can only generate funds from loan interest.