China will mobilize what the country’s leaders have referred to as “patient capital” – funds oriented towards the longer term with greater risk tolerance – to bankroll its strategy to leverage emerging technologies into a force for economic development. “To develop new quality productive forces and strengthen the development of future industries, we should actively develop venture capital and scale up patient capital,” according to a statement by te Communist Party's Politburo. “New quality productive forces” is a phrase that has appeared more frequently in official communications since President Xi Jinping broached the topic in September. The concept is linked with the national plan to transition to a more tech-based model for economic growth and move the country farther up the global value chain. As authorities look to implement this blueprint and move resources into research, the Politburo is identifying patient capital as a critical source of funds, analysts said. Pivoting the economy on a more sustainable and self-reliant path has taken on greater importance in recent years, as the West intensifies containment measures to limit trade with China, particularly in the sale and acquisition of cutting-edge tech. This urgency also applies to the capital necessary to back such a broad-based change.
The concept of “patient capital” was coined by American Economist Stephen Kaplan in 2021 in his book dissecting the political economy of Chinese investments in the Americas. Since then, the term has taken on more meaning in China’s official discourse, as state assets and securities watchdogs have called for longer-term financial resources to be pooled into key sectors. Beijing has also mandated financial institutions to strengthen their support of the real economy, especially tech. With its elevation by the Politburo and linkage to new productive forces, the notion of patient capital has earned even more cachet. “It should be said that the term is not new, but the significance is bigger in the context of the current economic and geo-strategic cycle,” said Economist and Ma Guangyuan. “Patient capital is called for in the cultivation of new industries over long timeframes.”
Yan Xiang, Chief Economist with Fujian-based Huafu Securities, said patient capital will be sorely needed when China seeks sources of innovation and numerous tech start-ups are devoid of funding. “Their high risk exposure, lack of collateral and uncertainties in trailing new, disruptive technologies usually put off banks. It would be years before tech firms can lock in finance,” Yan said. “This is where venture capital and patient capital can fill the void, to invest early in small start-ups as well as technologies.” Although there is no official set of definitions or values for what constitutes patient capital, analysts said funds that qualify would need to “play long”, minimize interventions in the daily affairs of recipient companies and be less risk-averse. To scale it up, they added, Beijing also needs to issue policies to ensure capital remains patient. Ma Guangyuan said measures would ideally underpin long-term expectations for capital and investors. “Patience is the key in our pursuit of innovation and transformation. We should not be myopic or rush for quick success or gains,” Economist Ma Guangyuan said, as reported by the South China Morning Post.
