During the period of the 15th Five-Year Plan, the second of the seven main objectives for economic and social development is to significantly enhance the level of scientific and technological self-reliance. With enterprises now serving as the main drivers of innovation, how effective is the support from our investment and financing systems, and what improvements are still needed? In the fifth installment of the "Diagnosing China's 2026 Economy" series, Guancha.cn invited Tian Xuan, a distinguished professor at Peking University and a deputy to the 14th National People's Congress, to provide an analysis.

In the discussion, Tian Xuan argued that the traditional financial model, which is dominated by indirect financing, no longer aligns with the national strategy of innovation-driven development and is mismatched with the needs of technological innovation. Using the film "Dying to Survive" as an example, he questioned why a box of lifesaving medication can be priced at 40,000 yuan. The reason, he explained, is that it took 50 years to develop. Innovation from zero to one involves long cycles and enormous costs, but indirect financing, represented by banks, is ill-suited to support the long-term nature of technological innovation.

Tian Xuan elaborated that the mismatch between indirect financing and technological innovation manifests in several key areas. The first is the conflict between the pursuit of "certainty" and the inherent "uncertainty" of innovation. Technological innovation is fundamentally an exploration into the unknown, a process of creating something from nothing. This differs significantly from conventional large-scale production, which operates on the logic of scaling up known processes.

Conventional work involves the repeated application of established paths. Innovation moves from zero to one, while conventional activities scale from one to 100, or even to infinity. The latter primarily seeks certainty. In contrast, technological innovation aims to discover new methods, concepts, business models, and products. By its nature, it is characterized by long cycles, high uncertainty, and a high risk of failure.

Indirect financing, however, predominantly pursues certainty. If an innovation succeeds, the company does not share the profits with the bank. But if it fails, the bank risks losing both the principal and interest. Therefore, banks are inherently risk-averse and seek certainty, while technological innovation is inherently uncertain. This constitutes the first mismatch.

The second mismatch is between short-term and long-term horizons. Banks and indirect financing typically focus on short-term returns, whereas technological innovation is a long-term endeavor. Innovation is not achieved overnight; it is a very protracted process. In the United States, for instance, inventing a new drug is often described by the "double ten" rule: it takes an average of ten years and an investment of one billion US dollars.

Tian Xuan cited the targeted cancer drug "Grenin" from the film "Dying to Survive," which has a real-world counterpart. Its prototype is Glivec, an innovative cancer drug developed by Novartis in the early 2000s. Research on its pharmacology began with a paper by a biologist in the 1950s. Novartis spent 50 years on multi-stage research and development before finally obtaining approval from drug regulatory authorities. Thus, the cycle is extremely long.

However, our indirect financing systems, particularly banks, typically offer short-term loans of one, two, or three years. Therefore, indirect financing, represented by banks, cannot accommodate the long-term nature of technological innovation. This is the second mismatch: a clash between short-term and long-term needs.

He added that the third mismatch involves the scale of financing. The business model of banks relies on earning interest from loans, so they naturally prefer to issue larger loans to maximize interest income. Consequently, banks tend to lend to companies with stable cash flows and mature business models, expecting interest returns within a few years.

Technological innovation companies, however, are different. In their very early stages, these companies need the freedom to experiment and iterate. Small enterprises do not require loans amounting to tens of millions or billions. Angel investments might start at levels of tens of thousands, hundreds of thousands, or a few million yuan, nurturing the company to grow gradually before larger funding is needed later.