China is poised to leverage its capital markets to bankroll a new generation of hard-tech startups, rolling out long-term funding, national merger vehicles and an overhaul of its Nasdaq-style board.

The moves, anchored in its 15th Five-Year Plan outline released this month, aim to harness financial instruments to bolster its technology sector over the next five years.

LONG GAME

At the heart of this initiative sits a push for "patient capital" -- funding vehicles with long horizons designed to match the decade-long development cycles of emerging technologies such as quantum computing, nuclear fusion and brain-computer interfaces.

In April 2024, China's top decision-making body first proposed "bolstering patient capital" -- a directive now enshrined in the new five-year plan.

The northern industrial hub of Tianjin unveiled plans last Saturday to launch two concept-verification funds, each with a capital of 50 million yuan (about 7.26 million U.S. dollars). Designed with a 15-year investment horizon, these vehicles are intended to channel private capital into ultra-early-stage financing for university-born innovations still emerging from labs.

Government investment funds are being pressed to lead by example. Shanghai State-owned Capital Investment Co., Ltd. (SSCI) has established a fund of funds (FOF) targeting integrated circuits, biomedicine and AI, selecting underlying funds on 15-year or 20-year durations to ensure long-term commitment.

"We position ourselves to invest early, invest small, invest for the long term, and invest in hard technology," said Yuan Guohua, chairman of SSCI.

Major economically vibrant regions in China, such as Beijing and Shanghai, have already established specialized funds to support sustained, long-term capital deployment in hard-tech sectors.

Last December, China launched a national venture capital guidance fund, as part of efforts to mobilize more patient capital for innovative and future industries, with at least 70 percent of its capital directed to seed-stage and early-stage enterprises.

This month, Chinese authorities proposed a package of measures to better align their sci-tech insurance system with technological innovation. For tech-focused small and medium-sized enterprises, insurers are encouraged to offer simpler, more affordable products with greater access and more convenient claims processes.

MERGER FUND

To better arm new entrepreneurs with capital, China plans to establish a national-level mergers and acquisitions (M&A) fund this year, expected to guide and leverage more than 1 trillion yuan of investment. This move echoed the call in this year's government work report to expand exit channels for private equity and venture capital funds.

"The step targets a core challenge the industry has faced for years," said Zhang Yichen, Chairman and CEO of CITIC Capital. "In mature markets, only 20 to 30 percent of exits from primary market investments are achieved through IPOs, with the vast majority realized through M&A," Zhang added.

Yang Chengzhang, chief economist at Shenwan Hongyuan Securities Research Institute, noted that in complex industrial ecosystems such as smartphones, smart vehicles and humanoid robots, many innovative firms never grow into standalone giants. "Instead, they evolve into critical modules within the broader supply chain, joining forces with anchor enterprises through M&A."

The M&A fund is founded to complement patient capital by improving the efficiency of venture capital turnover -- freeing market-savvy capital from being tied up in specific tech projects and allowing it to flow to promising new entrepreneurs instead.

Wu Yibing, head of Temasek's business in China, observed that the Chinese market is currently characterized by a dual-engine dynamic of innovation flywheel and M&A consolidation.

"On one hand, an increasing number of established enterprises with solid fundamentals and cash flows are ready for mergers and acquisitions," said Wu. "On the other hand, China's distinctive ecosystem has generated a powerful innovation flywheel effect, rapidly incubating world-class leaders and creating compelling growth investment opportunities."

BOARD REFORM

The reforms extend to listed markets themselves. At a press conference earlier this month, Wu Qing, Chairman of the China Securities Regulatory Commission, announced that "more targeted and inclusive" listing standards will soon be introduced to the ChiNext board, China's Nasdaq-style market for growth enterprises.

Active support will be extended to high-quality innovative and entrepreneurial firms in emerging consumption sectors, and modern services seeking to list on the ChiNext board.

The overhaul measures also include a pre-IPO review for enterprises with breakthroughs in core technologies, permitting eligible firms under review to raise capital from existing shareholders, and optimizing pricing mechanisms for new share issuances.

The ChiNext reform plan reflects a shift from "P/E ratio-centric thinking" to "value discovery thinking," which is expected to accelerate the aggregation of medium- and long-term capital into new quality productive forces, said Tian Lihui, Dean of the Institute of Financial Development at Nankai University.

The high-quality development of a "technology board" in the bond market has also been written into China's five-year roadmap.

"A healthy equity and bond market, via market-based pricing mechanisms, can automatically direct capital toward the most dynamic and growth-potential sectors," said Li Zhan, chief economist at China Merchants Fund Management's research department.

Also, China's five-year plan pledges to enhance the convenience of foreign capital in conducting equity investment and venture capital activities in China.