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Innovation of financial service and development of high-tech enterprises
12.15.2011

Shanghai Municipal Government Information Office held a press conference focusing on proposals to speed up innovation of financial services and the development of high-tech enterprises. Following are some highlights:

Shou Ziqi, director of Shanghai Municipal Science and Technology Commission Fang Xinghai, director of Shanghai Municipal Government Finance Services Office Jiang Mingsheng, deputy president of Shanghai Pudong Development Bank

STV: I have a question for Mr. Shou. You just talked about the insurance of short-term contracts involving small and medium-sized enterprises. Could you elaborate on it? What are its selling points?

Shou Ziqi: This insurance product is to reduce the risks of short-term loans for small and middle-sized technology companies. It has several components, including government fund and insurance tools. If a loan turns bad, the insurance company will also cover part of the loss.

If a bad loan occurs, the government will assume 25 percent of the loss, the bank will cover 30 percent of the loss and the insurance company will take the remaining 45 percent. If an enterprise buys the insurance and pays off its debt in time, it will get a government subsidy worth 50 percent of the insurance premium. So far we have provided more than 153 million yuan of loans and we are looking to expand the volume to 1 billion yuan in the future.

Xinmin Evening Post: I have a question for Mr. Jiang about the cooperation with the Silicon Valley Bank. Since the China Banking Regulatory Commission has approved the bank to open a branch in China, how will it operate here and what preferential policies will it enjoy? For example, will it be allowed to invest directly in the stocks of technology companies?

Jiang Mingsheng: The cooperation is mainly focused on importing advanced management know-hows from the Silicon Valley Bank.

Fang Xinghai: It is still impossible for joint venture banks to invest in shares of other companies under the current policies. If the bank wants to engage in stock investment, it can do so through its guarantee company.

People may ask that since the Silicon Valley Bank has won official approval, why its joint venture bank won’t be up and running until next June. Because there are a few stages in its preparation, including the selection of a building, interior decoration, IT installation, etc. Every stage of its preparation has to be checked and approved by the China Banking Regulatory Commission. So it takes time.

Reuters: I just saw one of the targets is to attract famous international venture capital funds and venture capital management companies to Shanghai. Can you tell us some specific incentives to attracting venture capital investors from overseas?

Fang Xinghai: First, we have special policies to support QFLP (qualified foreign limited partner); second, some Shanghai districts have preferential policies for new VC firms and PE firms; third, we will establish the Shanghai Equities Custody Trade Center for unlisted companies. It provides PE and VC companies an opportunity to enter the market at an early date.

International Finance News: Both of you mentioned the three billion-yuan investment policies. Two are designed for guarantee companies and loan companies in cooperation with foreign partners as mentioned by Mr. Fang. What about the last billion-yuan investment? Can you tell us more about the concerned companies and their current status?

Fang Xinghai: Another 1 billion yuan goes to a special fund to subsidize banks that made bad loans. I mentioned earlier that loans to small and medium-sized technology companies in three high-tech parks are subject to certain risks. The government will cover 50 percent of the losses incurred by banks. The money is used for this purpose.

The capital for the combined loan and insurance company has been secured and the company has been registered. Another 1 billion yuan will be invested in the guarantee company. So far 200 million yuan has already entered its account. The rest is still being organized.

Shou Ziqi: The 3 billion yuan is to raise the level of failure tolerance and enlarge the pool of guarantee money. Besides, we want to encourage technology companies to borrow loans to develop business. That is why we set up the combined loan and insurance company to provide solutions to these small and medium-sized enterprises.