(Yicai) Nov. 13 -- The exit challenge facing China’s venture capitalists cannot rely on initial public offerings alone and requires a bigger mergers‑and‑acquisitions market and the growth of market‑oriented M&A funds, according to the vice chairman of the China Center for International Economic Exchanges.

The process of technological innovation is inherently complex and each stage -- from seed through startup to growth and maturity -- requires distinct financial services tailored to its needs, Wang Yiming, who is also a former deputy director of the Development Research Center of the State Council, said today at the Taihu World Cultural Forum's Qiantang Dialogue.

At the seed stage, government subsidies and angel investments are needed, Wang said. At the startup stage, venture capital and private equity funds can begin to step in, while commercial banks can offer support through the growth phase, he said.

Wang pointed out that under China’s existing banking‑led financial system support for tech innovation and development still relies heavily on lenders. Banks are finding ways to deal with this, he noted, such as establishing specialized departments to offer credit, and exploring mixed financing models that combine equity and debt.

But there is a problem with this approach, Wang noted. Banks seek predictable returns, making  them ill‑suited to the unpredictability of tech innovation and its commercialization, so exclusive reliance on bank financing has inherent limitations, he said.

Direct financing may be better aligned with tech innovation, Wang said, and compared with bank loans, equity-based direct financing is more beneficial for the meshing of technology and capital.

To strengthen the role of equity investment, he urged continued upgrades to Shanghai’s Star Market and Shenzhen’s ChiNext board to better serve innovative companies, while also vigorously the venture capital sector.

Editor: Tom Litting