A Study On The Financing Mode Of Strategic Emerging Industry In China

The global financial crisis, originally caused by2007US subprime mortgage, hasdone and is still continuously doing harm to the world economy system. To get throughthis crisis, as well as to seize the advance position in the world economy, both developedcountry and emerging market have programmed plans and established policies to supportthe emerging industries.The financial crisis occurred at a very special period while our nation is facing theturning point of economy development. The triple problem of “financial crisis”,“economytransformation” and “middle income trap” called for new strategic economy plan. Hence,we have raised emerging industries as an important part of national strategy.On October18,2010, the State Council issued the "State Council Resolution onAccelerating the Strategic Emerging Industries". Moreover, CPC Central Committee alsosuggested “develop modern industry system, strengthen core competency, reform andimprove manufacturing and foster strategic emerging industry” in the12thfive year plan,indicating the importance of strategic emerging industry.On July20,2012, the Chinese government stated target of emerging industrydevelopment in the “Emerging Industry Development Plan of12thFive Year Plan Period”.The target includes “average20%growth”,“formation of numerous leading enterpriseswith independent innovation abilities, advanced technology and multiple industrialagglomerations with unique feature”.According to the plan, by2015, emerging industries growth should account for8%ofGDP, with an important role in industrial restructure, green economy, the improvement ofhealth and employment rate; by2020the emerging industry will become the new engine ofeconomy and its growth will account for15%of GDP, from which we will see GreenInitiative, new IT, Biotech, and high-end equipment manufacturing become pillar industrywith global advance technique; new energy, new material and new energy automobile will become forerunner industry. Chinese government and local government will createstrategic plan to support developments of these industries accordingly.Strategic emerging industries met with many challenges for us to face, for itsperceptiveness, interdisciplinary and cross-industry complexity, progression growth,sustained development and other characteristics. There are a lot of new subjects to bethoroughly and systematically studied, one of which is how to promote efficient andbalanced development of strategic emerging industries via innovation of financial system.It is obvious that the development of strategic emerging industries requires not onlythe macro policy guidance, but also support of financial resources.Unfortunately, China’s current financial system relies on the basis of development oftraditional industries in the past30years which means it is lagged, mismatched and lack ofinnovation. Therefore, it is an important subject as to how to build proper financingsystems and patterns fitting the emerging industries.Currently, China academia focus more on the natural, development history and policyframework of emerging industries with concern of industrial economics, and have achievedmany consensus. However, we are lack of systematic research on financing pattern ofemerging industry.In this article, the author starts from corresponding characteristics of emergingindustry and financing theories, and then analyzes the status quo of financing patterns bycomparison between domestic and offshore, attempting to build a systematic financingmode, with a specially focus on operation risks and financial characteristics in differentstages of industrial life cycle. And at last, it explores the application of preferred stock andthe preferred stock package.Specifically, the main contents of the dissertation are as follows: Chapter1describesthe background and significance of the study, gives a summary of relevant literature ofboth home and abroad so as to interpret the basis of this study and its relevant approach.Further along this line, it concludes the main contributions of this dissertation as well as itsshortcomings. Chapter2covers the theoretical part. The author defines the nature andcharacteristics of emerging industries, then makes an analysis of the difference betweenmarket-oriented and policy-oriented financing models to further dig into how financingissues affect the development of emerging industry. In Chapter3, by taking financingmodels from developed countries including US, Japan and Germany as role model, the author aims to arrive at some valuable inspirations by comparing their characteristics.Chapter4introduces China’s strategic emerging industry development and performs aresearch on financing resources available to emerging industries in the different stages oflife cycle, featured with their traits. It also discusses about the financing efficiency byusing samples of public listed companies and demonstrates the financing resourcesmismatch caused by finance system and patterns, in different lifecycle stages of emergingindustries. In Chapter5, the author explores the feasibilities of different innovation routesof emerging industry financing from the macro-policy aspect. Potential measures includes:government sponsored financing vehicles, intellectual property backed commercialmortgage, innovative bond, innovative VC-PE business model, preferred stock mechanism,multi-model risk allocation financing and etc. In Chapter6, the author performs casestudies on emerging strategic industry financing, namely focus on Alibaba’s financingmodel, to surmise the lesson we learned from current finance model selection. Chapter7isthe conclusion part in which it discusses the potential further research of this research field.