How China is Boosting Lending to Tech Start-Ups Through Intellectual Property Financing

China’s Innovative Strategy for Tech Lending

China is significantly expanding its financial support for tech start-ups by leveraging intellectual property (IP) as collateral. This strategic move comes at a critical time as the country strives to reactivate sluggish loan demand and foster economic growth amid challenging market conditions.

Surge in IP-Pledged Financing

Official reports indicate that total new intellectual property-pledged financing loans skyrocketed by 57% in the first half of 2024 compared to the previous year, reaching Rmb419.9bn ($58.5bn). This impressive growth follows a 75% increase in 2023, highlighting a rising trend in using IP-backed loans as a means of reviving the credit landscape in the world's second-largest economy.

Policymakers’ Focus on Innovation

• The new lending policy primarily targets small and micro enterprises, which play a crucial role in economic recovery and innovation.
• With banks displaying reluctance to lend due to a prolonged slowdown in the property sector and weak municipal finances, this strategy aims to incentivize financial support for tech-driven initiatives.

Interest Rate Subsidies and Support Structures

To encourage banks to issue IP-backed loans, the Chinese government is providing interest rate subsidies, creating a financial environment conducive to the growth of innovative businesses. Moreover, regulatory frameworks have been adjusted to facilitate slightly more leniency regarding non-performing loans, making the issuance of such loans less risky for financial institutions.

Case Studies in IP Financing

• One company, Beijing Guoxinda Data Technology, borrowed Rmb8mn under this scheme, highlighting its effectiveness for expansion.
• However, the program is also attracting distress borrowers, such as Yichun Xianghe Agriculture Technology Development Co., which faced cash flow challenges due to external factors.

With government backing and a clear recognition of the importance of intellectual property in securing funding, China is determined to foster the growth of its tech start-up ecosystem.