A recent report by research outfit Rhodium Group highlights the concerning trend of new capital in China being predominantly allocated to “safe” companies, rather than those focused on driving growth through innovation. This goes against Beijing’s stated goal of promoting innovation as a key driver of economic growth.
The report emphasizes the need for banks to lend to sectors and firms that can effectively fuel innovation and economic growth, but cites decades of misallocation where credit has mostly flowed to traditional industries and state-owned enterprises. This has created challenges in shifting lending patterns, especially in the context of slower economic growth.
Additionally, the report notes that while private and venture capital is on the rise, it is becoming increasingly risk-averse. This poses a barrier to supporting innovative companies.
During the third plenum, the Communist Party pledged to enhance support for private companies leading in technological research and innovation, signaling a potential shift towards prioritizing innovation-driven growth in China’s economy.
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