(Yicai) Sept. 25 -- China has extended the number of cities in which the Big Five banks’ Asset Investment Companies can make investments targeting scientific and technological firms to 18 from the earlier small-scale trials, and has raised the ceiling on some investment caps, to give scientific and technological research in the country a boost.

AICs can now make equity investments in 18 medium-sized and large cities where scientific and technological research is active, including Beijing, Guangzhou, Shenzhen, Hangzhou, Chengdu and Nanjing, according to a document released by the country's financial regulator, the National Financial Regulatory Administration, yesterday. In the previous trial, rolled out in 2020, such investments were restricted to Shanghai.

China has five AICs, each run by one of the five biggest state-owned banks, namely Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications, that were set up in 2017. The AIC buys non-performing assets from the bank, and in this way removes the lender from the equation to deal with the struggling company directly.

AICs mainly invest in debt-to-equity assets to help reduce leverage in the real economy. But in 2020, China began to allow AICs to invest in tech startups at the early and mid-term phases in a pilot scheme launched in Shanghai.

AICs’ investment ceiling has also been raised to 10 percent of their total assets at the end of the latest quarter from 4 percent, the NFRA said. And they can now invest up to 30 percent of the fund's issuance scale in a single private equity fund up from 20 percent before.

Indirect financing, mostly in the form of credit, still dominates China's social financing, while high-risk and venture capital investments, which are more suitable to scientific and technological startups, are underdeveloped, said Ye Huaibin who works at the BOC's research institute. Therefore, expanding the scope of AICs' equity investment will be significant in encouraging venture capital investment and developing technology financing, Ye added.

China is also encouraging insurers and other long-term fund managers to step up their allocations in stocks to inject new life into the country’s stock market.

The pilot reform of long-term investment of insurance funds to set up private equity investment funds will be expanded to support more qualified insurance institutions, Li Yunze, director of the State Financial Regulatory Administration, said at a press conference yesterday.

Editors: Dou Shicong, Kim Taylor