In April this year, the Central Political Bureau meeting emphasized: "Development of new quality productive forces should be tailored to local conditions. It is necessary to strengthen the layout of national strategic scientific and technological forces, cultivate and expand emerging industries, pre-layout and build future industries, and use advanced technologies to empower the transformation and upgrading of traditional industries. Active development of venture capital and the strengthening of patient capital are also important."

For the first time, the high-level meeting proposed the concept of "patient capital," which has attracted market attention and heated discussion. Especially on the public opinion front of "tax retroactive investigation," understanding patient capital and how to build a long-term investment institutional environment is crucial for improving market expectations and sustaining economic growth.

Patient capital is a new policy language, and national funds are a typical example of patient capital. From an economic logic perspective, the term of capital is not subject to the will of individuals or institutions but is determined by market prices. Market prices effectively allocate capital, transfer risks, and arrange terms. However, "patient capital" adds a subjective evaluation or requirement to the term of capital. What is patient capital? What is impatient capital? Or, how to measure the patience of capital?

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We need to understand this from the construction of the policy context at the top level. I have been studying policy linguistics, and in recent years, China has seen the emergence of many new policy languages, such as "housing for living, not for speculation," high-quality development, new quality productive forces, and so on; since the 19th National Congress, a policy context different from the previous simple high-speed growth era has gradually been constructed. We need to understand patient capital within this new policy context.

New policy languages are proposed in response to issues in past economic development. As China's economy gradually bids farewell to the high-growth era, it replaces speed with quality and pursues high-quality development. How to achieve high-quality development? In the past era of demographic dividends, economic growth was driven by the accumulation of resources such as population, land, and capital. With the decline in population growth and the scarcity of land resources, this growth momentum is gradually weakening, and at the same time, the risks of real estate bubbles and local debt formed by capital accumulation continue to increase. This kind of productive force is old and cannot achieve high-quality development. To achieve high-quality development, it must be a new productive force, relying on technological, industrial, and institutional innovations to improve economic efficiency.

Let's return to the new policy context system to understand patient capital. For example, urban investment companies invest a large amount of loans in land development related to real estate, developers use high-turnover and high-debt methods to develop real estate, and residents leverage to speculate on housing. This is indeed one way of investing, but if done on a large scale, this kind of capital is prone to increase debt risks. Today, when we talk about "housing for living, not for speculation," we mean that houses should return to their residential essence. The corresponding capital invested in real estate is patient, belonging to a type of capital that pursues rental returns, similar to the real estate markets in today's developed economies. Of course, this does not exclude the financial and wealth attributes of real estate. Land is a fixed asset of a country, and being bullish on housing prices is not necessarily impatient capital. The foundation of patience is confidence, being full of confidence in a country's development, which is generally reflected in housing prices domestically and exchange rates internationally.

It can be seen that the concept of "patient capital" is close to long-term oriented capital and is often associated with long-termism. Compared with short-term investment or speculation, patient capital has a longer investment term, stronger strategic determination, befriends time, accompanies risk, adheres to long-term investment, value investment, and is more likely to focus on major scientific and technological innovation fields, national infrastructure fields, and basic education and human capital enhancement fields.

Providers of "patient capital" can be entrepreneurs, business people, venture capitalists, capital market investors, as well as state-owned banks, national pension funds, sovereign wealth funds, and state-owned enterprises.

Under the new policy context system, combining patient capital with high-quality development and new quality productive forces, we believe that the high-level meeting advocates patient capital, which may be considered for the following two points:Firstly, it supports major technological innovations with long cycles and the transformation and upgrading of traditional industries, enhancing new quality productivity, and promoting high-quality development;

Secondly, it supports government counter-cyclical adjustments, issuing ultra-long-term special treasury bonds, and increasing strategic government investments.

At present, economic expectations are weakening, effective demand is insufficient, private investment is sluggish, defensive savings and term savings are surging, and the government's expansion of treasury bonds, especially ultra-long-term special treasury bonds, will extend the investment period, spend out residents' savings, and invest in strategic projects with low market participation.

The term of financing and investment must be highly matched. National strategic projects are long-term investments and must be equipped with long-term capital. Luo Zhiheng, Chief Economist at Guangdong Kai Securities, found that the direction of funds for ultra-long-term treasury bonds is closely linked to the public fiscal policy objectives of various countries. For example, Japan's ultra-long-term treasury bonds account for 44.8%, mainly used for refinancing and supporting key areas such as its pension expenditure. Germany's ultra-long-term treasury bonds account for 27.8%, mainly used for long-term infrastructure construction and green investment areas. China's ultra-long-term treasury bonds are relatively low, lower than economies such as Japan, the United States, and Germany. In comparison, China's ultra-long-term treasury bonds are relatively low, only 16.9%, and there is still some room for improvement.

According to current policies, ultra-long-term special treasury bonds focus on key tasks such as achieving high-level scientific and technological independence, promoting integrated urban and rural development, promoting coordinated regional development, enhancing the security of food and energy resource guarantees, promoting high-quality population development, and comprehensively advancing the construction of a beautiful China.

National funds, including national sovereign funds, pensions, national natural science funds, and ultra-long-term treasury bonds, are a typical patient capital. They have long investment cycles, pursue stability, and have public attributes. They invest in large funds, scientific research, pensions and livelihoods, education and human capital for a long time.

Venture capital is another patient capital. The more developed the financial market, the more patient the capital is.

The proposal of patient capital may be related to the wave of artificial intelligence revolution that emerged in the United States last year. This wave of artificial intelligence revolution has attracted a large amount of venture capital and financial capital, and has driven the stock prices of seven major technology giants such as Nvidia and Microsoft to rise sharply. Today, as international geopolitical risks continue to increase, the technological competition between countries is becoming increasingly fierce, and China's investment in new technologies, including artificial intelligence, is becoming more and more urgent. The government hopes to guide more capital, in addition to state-owned capital, and there will be more private capital investing in major technological innovations and the transformation and upgrading of traditional industries.

However, private capital has its own laws. Venture capital and financial markets are important conditions for technological innovation and provide long-term financing for large-scale, high-risk technological investments. In other words, venture capital is another patient capital that can support technological innovation for a long cycle.

Compared with national funds, venture capital's "patience" characteristics show different features.Innovation is a process from 0 to 1, with no uncertainty involved, which determines that technological innovation is a risky event. Major technological innovations are high-input roundabout productions with longer cycles and greater risks. How can investment risks be reduced?

Risks cannot be eliminated; they can only be transferred and effectively allocated. Financial markets can effectively transfer and allocate risks through pricing. For example, entrepreneurs (founders) transfer a portion of assets and risks to angel investors through financing, who then transfer them to venture capitalists, who in turn transfer them to equity investors, who then transfer them to a second round of equity investors, and finally, equity investors transfer assets and risks to stock investors through the company's listing. This is not the end; stock investors transfer assets and risks to other stock investors, who may use the assets for pledge or create other financial products, thus further transferring risks to the entire financial market.

From angel investment, venture capital, to equity investment, the stock market, and finally to the entire financial market, this is not a game of hot potato, but rather a process where risks accompany assets and are transferred and effectively allocated layer by layer under the price adjustment of different markets. Those who can bear the risks continue to bear them, and investors who cannot bear marginal risks should clear out as soon as possible. Each investor provides continuous financing for technological innovation within the risk margin, thereby supporting major technological innovations.

The success logic of venture capital lies in flow, not stock. Many people have a deep misunderstanding about this.

For example, in 1993, the first round of financing Huang Renxun received was a joint investment of $2 million from two angel investors from Sequoia Capital. By the time Nvidia went public on NASDAQ in 1999, the valuation of this angel round had increased by 38 times, and the latest market value has reached an astonishing $2.8 trillion.

Such examples also exist in China. In 2001, Naspers acquired a 46% stake from Richard Li, IDG Capital, and the founding team of Tencent for a cost of $32 million. At its peak, this investment realized a value of nearly $140 billion, creating an investment myth of more than 40,000 times. Today, Naspers remains a major shareholder of Tencent.

These two cases are typical examples of patient capital. However, many people misunderstand this, thinking that holding on and not letting go is patient capital. In fact, the success logic of venture capital is not stock, but flow, that is, liquidity.

Angel investors hold Nvidia for the long term, and Naspers holds Tencent for the long term. In addition to being optimistic about the long-term growth of Nvidia and Tencent, another very important reason is that the financial market maintains sufficient liquidity. The more developed the financial market, the better the liquidity, the more fully the risks are allocated, the smaller the risks become, and the more patient the capital becomes. If the financial market is not developed and liquidity dries up, capital will only try to sell. Therefore, a developed and liquid financial market can effectively allocate risks, which supports the patience of capital.

Venture capital is also a form of patient capital, and its patience comes from "flow" rather than "stock." National capital is a patient capital for long-term investment, which is a stock capital, while venture capital is a patient capital with high liquidity, which is a flow capital.

In fact, venture capital is highly compatible with national funds, and the two can cooperate and promote each other. Developed financial markets can allocate risks for national capital and provide exit markets. In the global financial market, venture capital and equity investment have successfully created large technology leaders like Nvidia, and various national funds are widely involved (including index ETFs). Institutional reforms are key to cultivating patient capital and promoting technological innovation.Nowadays, our investments face a series of challenges. For instance, a large amount of bank loans and private capital have entered the real estate market, being consumed in speculative housing, which has inflated capital bubbles and increased debt risks. In the past, local urban investment companies borrowed a large amount of short-term debt and invested heavily in short-term land-related projects, which came with high interest rates and significant risks. The debt pressure on local governments has been increasing, and some localities have intensified tax collection efforts, which to some extent has increased concerns about private investment. Additionally, in recent years, confidence in private investment has been low, the growth rate of foreign investment has declined, and the stock market has seen serious speculative phenomena, with a lack of patient capital and value investment.

How to build a market environment conducive to patient capital and long-term investment?

The above issues can be divided into two major categories and solved using different methods:

Firstly, there are cyclical issues, which require policy solutions to provide policy patience. Currently, there is a lack of effective demand in the macroeconomy, especially after the comprehensive decline of the real estate market, private investment has decreased, market prices have fallen, and debt risks have risen in response. When an economy faces balance sheet risks, capital is busy avoiding risks, and residents are eager to repay debts, making it impossible to be patient. What should be done? According to Keynesian economic policy, when there is insufficient demand in the private sector, the government should take the initiative to implement counter-cyclical policies, actively expand fiscal and monetary policies, increase public investment, and stimulate total demand to repair.

In terms of monetary policy, the central bank needs to act decisively, cutting interest rates when necessary, and making substantial cuts when required, to minimize the real interest rate as much as possible, reducing the actual debt burden and financing costs. At the Minsky moment, the central bank must play the role of the lender of last resort, acting as the final buyer, marginal price setter, and gatekeeper of the capital market, constructing the last line of defense for private investment.

Monetary policy should place great emphasis on expectation management and pay close attention to the market sentiment of the citizens. When a crisis occurs, investors panic and sell off assets, and the central bank acts decisively, making substantial interest rate cuts, and even implementing quantitative easing, buying assets on a large scale, which can quickly curb the spread of panic. The market maintains sufficient liquidity, and capital will not panic excessively. As the market slowly recovers, patience gradually forms.

In terms of fiscal policy, the Ministry of Finance should break through conventions and implement expansionary fiscal policies. In particular, the central government needs to issue a large amount of ultra-long-term special national bonds to reverse the current misallocation of central and local debt and credit, the misalignment of debt maturity and risk, resolve local debt risks, curb the impulse of local taxation and fines, and provide a stable business environment for private investment; at the same time, increase the proportion of medium and long-term, ultra-long-term national bonds, increase national strategic investment, actively extend the investment cycle, and increase patient capital.

The government needs to directly create income for the private sector by increasing public spending. According to the view of New Keynesianism, transferring fiscal funds to residents' income, due to the high marginal propensity to consume of residents, is easy to convert fiscal funds into purchasing power, thereby stimulating consumer demand, and market liquidity will also greatly increase, which can quickly improve market expectations. This is the most direct way to boost confidence in private investment and consumer demand. To some extent, the effect of the U.S. Federal Treasury's distribution of relief funds during the epidemic has verified this view.

Therefore, the elimination of panic comes from the courage and responsibility of the central bank, and the patience of capital comes from the persistence and wisdom of fiscal policy.Secondly, structural issues and cyclical problems require reforms to be resolved, providing institutional patience.

Structural issues such as finance, taxation, and credit need to be addressed through deep-seated institutional reforms. To boost the confidence of private enterprises in investment, the government has introduced many measures. These measures provide policy patience. Fundamentally, it is institutional reforms that reassure and encourage private enterprises to invest with confidence, forming institutional patience.

For instance, financial market reforms. The best way to reduce risks is not to suppress financial markets or curb liquidity, but to cultivate a developed financial market. How can we cultivate the financial market? By establishing a market-oriented and rule-of-law-based stock trading system. The so-called marketization means that capital can enter and exit freely, and a broad base of investors decide who can enter, who must exit, and who pays how much, so that capital can be reassured and at ease. The so-called rule of law means that capital follows contracts and measures risk and transactions based on a fair and transparent trading system, so that capital can be patient and confident. The stock market is a contract-intensive market; financial transactions have no physical presence, and every transaction is a contract transaction, each contract relying on the protection of the trading system. At the same time, regulatory agencies should focus on combating illegal activities such as insider trading, illegal cashing out, and power rent-seeking.

The National People's Congress needs to establish a comprehensive judicial system to protect ownership rights, operating rights, and all legal rights and interests. Economist De Soto (2000) revealed the secret of capital, proposing why capital is difficult to succeed in the third world, the reason is that these countries lack key property rights expressions. Personal property rights and corporate operating rights cannot be effectively protected by law, and the capital of these countries can never grow sustainably.

For example, the current urban land use rights are still 50 years or 70 years. If it is announced as permanent and legally established, it can increase the patience and confidence of capital. If the property rights of rural collective land can be further implemented, property transactions will be smoother and more liquid, and enterprises will be more willing to make long-term investments in land.

Here we introduce the factor of expectations. In transitional countries, it is difficult at first to form a perfect property protection law like European and American countries, so expectation management becomes very important. Deng Xiaoping was very good at implementing expectation management, repeatedly emphasizing "a hundred years without shaking," allowing people to establish a lasting belief in reform and opening up. Before the legal system is perfect, unstable expectations or reversals can easily lead to cautious investment and capital withdrawal. At present, we need to be cautious about historical issues in the process of national transformation, not arbitrarily initiate retroactive rectification movements; at the same time, crack down on the bad behavior of smearing private entrepreneurs, and create a more relaxed and inclusive public opinion environment and social atmosphere.

In other words, through institutional reforms, using the law to protect the results of reforms, clarifying and protecting personal property rights, corporate operating rights, and all legal rights and interests, can maximize market expectations and motivate patient capital.