Zhang Xiaojing talks about financial support for science and technology innovation： giving risk pricing to the market, establishing fault-tolerant mechanism and inclusive supervision.

Zhang Xiaojing, Director of the Institute of Finance of China Academy of Social Sciences and Director of the National Finance and Development Laboratory, The Paper reporter Zhou Yushe

On September 22nd, at the 5th Bund Financial Summit in 2023, Zhang Xiaojing, director of the Institute of Finance of China Academy of Social Sciences and director of the National Finance and Development Laboratory, pointed out that risk and uncertainty are the "bridges" between finance and science and technology innovation. For scientific and technological innovation, the biggest problem is how to deal with the risks and uncertainties faced by innovation and how to cross the "valley of death". For the financial system, risk pricing and risk allocation are its most basic and important functions.

"It is risk and uncertainty that make finance and technological innovation have a natural connection, and also provide a perfect reason for finance to support technological innovation." Zhang Xiaojing said that a financial system has advantages in identifying risks, pricing risks and allocating risks, so it must also have advantages in supporting scientific and technological innovation.

Focusing on China’s financial support for scientific and technological innovation, Zhang Xiaojing pointed out the "soft underbelly":"The lack of risk identification ability, the dysfunction of risk pricing and risk allocation are precisely the Achilles heel of China’s financial system, which has also become the fundamental reason for the lack of financial support for technological innovation."

Zhang Xiaojing said that the "four-in-one" catch-up model (the "structural advantages" of state-owned enterprises, the development responsibility and soft budget constraints of local governments, the institutional preferences of financial institutions and the last resort of the central government) makes the risk pricing and rational allocation of financial resources not determined by the market, but largely influenced by government intervention, leading to distorted risk pricing and improper allocation of financial resources. Some departments get a lot of credit funds, but fail to bear the corresponding risks-this is caused by implicit guarantee, rigid redemption and too big to fail.

However, this does not mean that the government cannot play a role in it, but emphasizes that the role of the government should also be played on the premise of not damaging the decisive role of the market.

"Financial support for science and technology innovation needs an’ ideological enlightenment’." Zhang Xiaojing said that the value of capital depends on future expectations, not the past, which is a real revolution and "ideological enlightenment" in financial epistemology. It is this revolution that laid a theoretical foundation for financial support for scientific and technological innovation: because the current financial support for science and technology innovation depends on the "expectation" of future scientific and technological innovation achievements.

Zhang Xiaojing said that it is necessary to respect the laws of the market economy and promote the reform of financial marketization. Putting the focus of economic development on the real economy does not mean that finance can be dispensed with, or that finance is in a completely subordinate position. The development of China’s socialist market economy in the past 40 years is to liberate the role of finance as a cashier in the planned economy era and give full play to the dynamic role of finance in promoting the transformation of savings-investment and economic catch-up and development.

He said that the relative independence of finance is precisely the premise that finance can better serve the real economy, abandon the "traditional" thinking that finance is only a vassal and mirror image of the real economy, and accurately understand the dialectical relationship between economic and financial symbiosis and common prosperity. The development of finance does not necessarily lead to the hollowing out of the industry, and the strength of American science and technology is closely related to its developed financial system; High-level science and technology can’t stand on its own feet without the support of a modern financial system.

In Zhang Xiaojing’s view, promoting financial market-oriented reform, getting rid of implicit guarantee, illusion and ownership discrimination, and improving the decisive role of finance in risk pricing and risk allocation are the institutional guarantees for financial support for science and technology innovation.

Financial support for science and technology innovation must also understand the law of scientific and technological innovation, especially the basic law of transforming scientific and technological innovation into actual productivity. Experience shows that the influence of the adoption of new technology on productivity growth is underestimated at the beginning and not overestimated at the end, which is generally in a "J curve" mode.

Talking about innovation failure and fault-tolerant mechanism, Zhang Xiaojing said that from the micro level, investment failure should be allowed, and state-owned enterprises should establish fault-tolerant mechanisms. To tolerate fluctuations and bubbles at the macro level, keeping the bottom line of risk does not mean zero tolerance for financial risks. The function of finance is realized in fluctuation, just as the function of price mechanism is that price is realized around value fluctuation. This means that supervision should be inclusive.

In addition, Zhang Xiaojing also talked about preventing technological development from succumbing to financial laws. Technological development is completely determined by market or financial laws, which may deviate from the social optimal goals, such as investing heavily in the research and development of late-stage therapeutic drugs, rather than the research and development of early-stage preventive drugs; AI technology is more oriented to replacing labor than empowering or assisting labor.

"Risk identification, risk pricing and risk allocation are the’ soft underbelly’ of China’s financial system, and the lack of modern financial thinking leads to improper evaluation of science and technology innovation (enterprise) is the’ soft underbelly’ in concept understanding." Zhang Xiaojing concluded that the solutionWe need an ideological enlightenment, leave risk pricing and risk allocation to the market, respect the laws of market economy, grasp the laws of scientific and technological innovation, establish fault-tolerant mechanisms and inclusive supervision, strengthen international cooperation and improve global scientific and technological governance.