Too much new capital in China is being allocated to companies regarded as “safe” rather than those which could drive growth through innovation – a stated goal of Beijing’s industrial policy – research outfit Rhodium Group said on Wednesday.
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“Beijing needs banks to lend to sectors and firms that can more efficiently fuel innovation and economic growth than the industries that were prioritised in the past,” read a report by the Washington-based firm.
“But decades of misallocation – with credit flowing mostly to legacy industries and state-owned enterprises (SOEs) – make changing patterns of lending difficult, particularly in a context of slower economic growth.”
Limited direct grants and bank credit is concentrated while private and venture capital is growing risk-averse, according to the report.
At its third plenum – held in July to chart the course of the world’s second-largest economy for the next several years – the country’s Communist Party pledged to increase support for private companies that could lead in technological research and other innovations.