China
Financing innovation in China
Author: Xun Wang, Peking University
China’s economic development and financial opening are now at a crucial turning point.
External downside risks now dominate due to the COVID-19 pandemic and trade tensions, and domestic markets urgently need upgrading to lift technological innovation. The recently drafted 14th Five Year Plan emphasises an innovation-oriented development strategy. Although many measures have been adopted, how to effectively finance innovation remains one of China’s primary challenges.
Research and development (R&D) expenditure is a common measure of investment in innovation. Innovation investment is usually long term and tends to run down firms’ internal funds. The availability of external finance is critical for firms trying to innovate.
According to the World Bank, China’s expenditure on R&D as a percentage of GDP experienced steady growth between 1996–2017, rising from 0.56 per cent to 2.12 per cent. Compared to leading industrial countries in 2017, China’s R&D ratio was 0.7 percentage points less than that of the United States and 1.1 percentage points less than that of Japan. More resources have been allocated to capital expenditure over the past few decades.
The key question in coming decades is how China’s financial system can better support innovation investment. Evidence shows that better access to equity market financing leads to substantially higher long-run R&D investment and better innovation performance. Credit market development has a positive impact on fixed investment but zero or negative impact on R&D.
Recent evidence suggests that credit market development has a positive effect on incremental innovation, which are proxied by the count and citation of utility model patents. But it has a negative effect on substantive innovation, proxied by the count and citation of patents of inventions. Equity market development leads to higher substantive innovations but is unimportant for incremental innovations.
China’s financial market is still dominated by the banking sector, especially state-owned banks. The market for direct financing is less developed. The share of bank financing — including bank credit, trust loans, entrusted loans and banker’s acceptances — in the country’s total social financing declined from 87.2 per cent in 2002 to 70 per cent in 2019.
The proportion of direct finance, including corporate bonds and equity financing, in the country’s total social financing increased from 5 per cent in 2002 to 12.3 per cent in 2019. But the role of the stock market has not risen in line with China’s rapid economic growth, probably due to stringent financial regulations. According to PBOC’s statistics, the share of financing through the stock market dropped from 4.6 per cent in 2002 to 2.9 per cent in 2019.
Capital account liberalisation might play an important role in innovation, by facilitating external finance, promoting competition and enhancing corporate governance. Since 2019, China has adopted several measures to ease restrictions on ownership and licenses to foreign financial institutions. This financial opening-up has led to a significant increase in the number of wholly or majority foreign-owned financial institutions operating in China. But these foreign financial institutions still face operational problems such as uncertainty about capital outflow, inflexibility of the renminbi exchange rate and the segmentation of bond markets.
The evidence also shows that the innovation-enhancing effects of capital account liberalisation might be affected by country-specific characteristics such as financial development and institutional quality. This means that countries would have to reach a certain threshold of financial and institutional development before they can expect to benefit from financial openness.
Looking forward, improving access to external finance will play a crucial role in fostering innovation in China.
China should steadily open domestic financial markets more widely to both foreign and domestic private capital. This includes completing interest rate liberalisation, achieving a clean floating exchange rate, facilitating cross-border capital movements and lowering entry barriers for both private and foreign financial institutions.
China also needs to restructure its financial system by enhancing the role of direct financing. It should eliminate restrictions in equity markets and promote the development of multilayered equity markets. Equity markets, including stock markets as well as venture capital and private equity markets,…
China
New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
China has been the world’s largest manufacturer for 14 years, producing one-third of global manufacturing output. In the Emerging Asia Manufacturing Index 2024, China ranks highest among eight emerging countries in the region. Challenges for these countries include global demand disparities affecting industrial output and export orders.
Known as the “World’s Factory”, China has held the title of the world’s largest manufacturer for 14 consecutive years, starting from 2010. Its factories churn out approximately one-third of the global manufacturing output, a testament to its industrial might and capacity.
China’s dominant role as the world’s sole manufacturing power is reaffirmed in Dezan Shira & Associates’ Emerging Asia Manufacturing Index 2024 report (“EAMI 2024”), in which China secures the top spot among eight emerging countries in the Asia-Pacific region. The other seven economies are India, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, and Bangladesh.
The EAMI 2024 aims to assess the potential of these eight economies, navigate the risks, and pinpoint specific factors affecting the manufacturing landscape.
In this article, we delve into the key findings of the EAMI 2024 report and navigate China’s advantages and disadvantages in the manufacturing sector, placing them within the Asia-Pacific comparative context.
Emerging Asia countries face various challenges, especially in the current phase of increased volatility, uncertainty, complexity, and ambiguity (VUCA). One notable challenge is the impact of global demand disparities on the manufacturing sector, affecting industrial output and export orders.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Is journalist Vicky Xu preparing to return to China?
Chinese social media influencers have recently claimed that prominent Chinese-born Australian journalist Vicky Xu had posted a message saying she planned to return to China.
There is no evidence for this. The source did not provide evidence to support the claim, and Xu herself later confirmed to AFCL that she has no such plans.
Currently working as an analyst at the Australian Strategic Policy Institute, or ASPI, Xu has previously written for both the Australian Broadcasting Corporation, or ABC, and The New York Times.
A Chinese language netizen on X initially claimed on March 31 that the changing geopolitical relations between Sydney and Beijing had caused Xu to become an expendable asset and that she had posted a message expressing a strong desire to return to China. An illegible, blurred photo of the supposed message accompanied the post.
This claim was retweeted by a widely followed influencer on the popular Chinese social media site Weibo one day later, who additionally commented that Xu was a “traitor” who had been abandoned by Australian media.
Following the publication of an ASPI article in 2021 which exposed forced labor conditions in Xinjiang co-authored by Xu, the journalist was labeled “morally bankrupt” and “anti-China” by the Chinese state owned media outlet Global Times and subjected to an influx of threatening messages and digital abuse, eventually forcing her to temporarily close several of her social media accounts.
AFCL found that neither Xu’s active X nor LinkedIn account has any mention of her supposed return to China, and received the following response from Xu herself about the rumor:
“I can confirm that I don’t have plans to go back to China. I think if I do go back I’ll most definitely be detained or imprisoned – so the only career I’ll be having is probably going to be prison labor or something like that, which wouldn’t be ideal.”
Neither a keyword search nor reverse image search on the photo attached to the original X post turned up any text from Xu supporting the netizens’ claims.
Translated by Shen Ke. Edited by Shen Ke and Malcolm Foster.
Asia Fact Check Lab (AFCL) was established to counter disinformation in today’s complex media environment. We publish fact-checks, media-watches and in-depth reports that aim to sharpen and deepen our readers’ understanding of current affairs and public issues. If you like our content, you can also follow us on Facebook, Instagram and X.
Read the rest of this article here >>> Is journalist Vicky Xu preparing to return to China?
China
Guide for Foreign Residents: Obtaining a Certificate of No Criminal Record in China
Foreign residents in China can request a criminal record check from their local security bureau. This certificate may be required for visa applications or job opportunities. Requirements and procedures vary by city. In Shanghai, foreigners must have lived there for 180 days with a valid visa to obtain the certificate.
Foreign residents living in China can request a criminal record check from the local security bureau in the city in which they have lived for at least 180 days. Certificates of no criminal record may be required for people leaving China, or those who are starting a new position in China and applying for a new visa or residence permit. Taking Shanghai as an example, we outline the requirements for obtaining a China criminal record check.
Securing a Certificate of No Criminal Record, often referred to as a criminal record or criminal background check, is a crucial step for various employment opportunities, as well as visa applications and residency permits in China. Nevertheless, navigating the process can be a daunting task due to bureaucratic procedures and language barriers.
In this article, we use Shanghai as an example to explore the essential information and steps required to successfully obtain a no-criminal record check. Requirements and procedures may differ in other cities and counties in China.
Note that foreigners who are not currently living in China and need a criminal record check to apply for a Chinese visa must obtain the certificate from their country of residence or nationality, and have it notarized by a Chinese embassy or consulate in that country.
Foreigners who have a valid residence permit and have lived in Shanghai for at least 180 days can request a criminal record check in the city. This means that the applicant will also need to currently have a work, study, or other form of visa or stay permit that allows them to live in China long-term.
If a foreigner has lived in another part of China and is planning to or has recently moved to Shanghai, they will need to request a criminal record check in the place where they previously spent at least 180 days.
There are two steps to obtaining a criminal record certificate in Shanghai: requesting the criminal record check from the Public Security Bureau (PSB) and getting the resulting Certificate of No Criminal Record notarized by an authorized notary agency.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
- Is journalist Vicky Xu preparing to return to China?
- Guide for Foreign Residents: Obtaining a Certificate of No Criminal Record in China
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