Unlocking New Strategies in Fintech

This article is reprinted from Anhui Daily.

Our province’s nationwide first-in-the-country “Joint Growth Program” supporting tech startups has been upgraded to version 2.0—

Unlocking new approaches in science and technology finance

■ Staff Reporter He Ke

“Yuexi Rural Commercial Bank signed the ‘Joint Growth Program’ 2.0 version with us. The bank provides a 3-year, 10 million yuan working capital loan, and we grant the bank a 1% equity preemptive subscription right,” said the head of Anhui Juntai Plastic Technology Co., Ltd. recently.

After pioneering the nationwide “Joint Growth Program” supporting tech startups, Anhui continues to explore mechanisms for long-term risk sharing and benefit sharing between banks and enterprises.

Equity subscription rights are used as tools for sharing development benefits, but realizing these benefits and using them to incentivize credit lending remains challenging.

What to do? To address the difficulty of recognizing equity subscription rights income during the implementation of the “Joint Growth Program,” Anhui launched “Joint Growth Program 2.0,” introducing a cross-market swap model for equity subscription rights income. This involves banks and enterprises pre-agreeing on equity premium returns. When the enterprise reaches a specified scale or profit, the premium is converted into routine banking services, enabling the forward-looking equity subscription rights to be realized in the current period.

By the end of January this year, Anhui had implemented over 3,000 cases of the “equity subscription rights swap model,” with an agreed equity subscription amount exceeding 10 billion yuan.

Banks become “partners”

After relocating to a new site, Anhui Juntai Plastic Technology Co., Ltd. has entered a new stage of development but faces new challenges.

“First, the new factory’s intelligent upgrade requires large equipment purchases to improve automation and digitalization; second, continuous cash flow support for R&D iterations is needed to better seize market opportunities in green manufacturing,” said the company’s leader.

“Traditional credit models struggle to meet the differentiated needs of ‘large equipment procurement + long-term R&D investment,’” said a relevant person from Yuexi Rural Commercial Bank after an investigation. Therefore, they included the enterprise as a key service target in the “Joint Growth Program 2.0,” designing an integrated comprehensive service plan and reaching a cooperation agreement.

Specifically, in terms of basic financing support, they precisely matched a 3-year, 10 million yuan working capital loan for purchasing intelligent injection molding equipment and testing instruments; simultaneously, they opened a dedicated settlement account for the enterprise and provided payroll services. Both parties also agreed that when the enterprise conducts bond underwriting, bill issuance, and related activities in the future, they will prioritize cooperation with Yuexi Rural Commercial Bank, forming a “financing + services + long-term binding” partnership.

In terms of core innovative cooperation, Anhui Juntai Plastic Technology granted Yuexi Rural Commercial Bank a “priority subscription right” for equity; to balance long-term development needs and bank investment returns, both parties also innovatively agreed on a “non-direct exercise and realization” cooperation model, creating a conversion mechanism from “equity appreciation benefits—bank’s routine business income.” This means that after the enterprise expands capacity and improves efficiency with bank financing, it continues routine banking services such as settlement, financing, and payroll, generating stable intermediary income and interest for the bank, replacing direct equity realization, and forming a virtuous cycle of “enterprise growth—deeper business cooperation—win-win for bank and enterprise.”

“The precise credit allocation from the bank effectively fills our funding gap for intelligent upgrades and R&D investment, significantly reducing overall financing costs. The flexible withdrawal and repayment methods also ensure the stability of our operating cash flow,” said the company’s leader.

From the bank’s perspective, the “debt + potential equity income” combined model not only guarantees debt security through enterprise cash flow and asset collateral but also locks in the appreciation gains from enterprise growth via the preemptive subscription right, achieving both “steady returns + excess returns.”

Forward-looking income realization in the current period

Funding difficulties and high demand for “blood transfusions” are among the most prominent issues in innovation and entrepreneurship. As early as 2023, Anhui pioneered the “Joint Growth Program” mode supporting tech startups nationwide, ensuring credit funds no longer merely pass through as “tourists” in technological innovation but support the entire cycle of innovation more effectively.

Now, the “Joint Growth Program” has upgraded from version 1.0 to 2.0, not only changing the cooperation model but also the mindset.

During visits, it was found that after sharing risks with tech enterprises early on, some companies’ value continued to increase, and banks have clearer expectations for realizing the value of shared enterprise growth and corresponding equity subscription rights income. However, although equity subscription rights are tools for sharing development benefits, realizing these benefits and using them to incentivize credit lending remains challenging.

“Tech companies are generally cautious about equity options, especially high-growth tech firms tend to reject early-stage, heavily diluted equity investments that dilute founding teams’ shares,” admitted a tech enterprise leader.

On the other hand, from the bank’s perspective, besides concerns about loan risks and whether exercise conditions might trigger, current laws such as the “Commercial Banking Law” prohibit banks from engaging in equity investments. Therefore, even if exercise occurs, it must be through subsidiaries or venture capital firms, making investment income difficult to reflect in credit business.

Currently, with mechanism improvements, some institutions with wealth management or investment subsidiary licenses have established profit-sharing mechanisms after equity option exercise within their groups. The benefits from bank credit business can be allocated to relevant business units at the provincial branch level, helping to address the issue of insufficient income sharing. However, in practice, the complexity of understanding equity options and the difficulty of incentivization still pose challenges for frontline credit officers.

The realization of potential forward-looking income in the current period, its pre-emptive nature, and the top-down operational logic and incentive mechanisms of banking institutions are better aligned.

Since the second half of 2024, the Anhui branch of the People’s Bank of China has launched the “Joint Growth Program+” special initiative, focusing on the core issue of difficulty in recognizing equity subscription rights income, introducing version 2.0. The core of this version is the “equity subscription rights swap.”

An official from the Anhui branch explained that under the new model, banks and enterprises sign a long-term strategic cooperation agreement containing options for equity subscription rights and other financial service priority rights. The agreement stipulates that banks can earn returns through enterprise deposits, loans, bank acceptance bills, etc., without actual exercise, but through a swap of returns to “currentize” the forward-looking equity subscription rights income. This approach balances supporting early-stage and growth-stage tech startups with low-interest support and the bank’s commitment to serving tech enterprises.

Balancing innovation and risk in tech credit

Some frontline bank credit officers noted that compared to traditional equity subscription rights realization paths, the “equity subscription rights swap model” offers more convenient income realization, easier promotion, more compliant operations, and more effective employee incentives.

“In November 2024, Anhui Xijing Electronics moved to the Jiangnan Industrial Cluster. We learned that after relocating to Chizhou, the company had urgent funding needs. After understanding their development plans and financing pain points, we signed the ‘Joint Growth Program’ 2.0 agreement with Anhui Xijing Electronics,” said an official from the Chizhou branch of the Agricultural Bank of China.

According to the agreement, the Agricultural Bank has the option to subscribe to 2% of the company’s equity. When the company’s valuation reaches a certain amount, under the same conditions, the company will prioritize banking services such as investment and financing, IPO preparations, capital raising, settlement, payroll, and acceptance. The agreement can be terminated by mutual agreement. After signing, the bank provided a 5 million yuan loan to the enterprise, creating a closed-loop service linking loans and investments, effectively alleviating the company’s funding pressure.

Han Biao, head of the Anhui branch of the People’s Bank of China, stated that following the “science questions, finance answers” approach, balancing the risks and returns of tech innovation credit across “two cycles” of time and development, the bank pioneered the “Joint Growth Program” for supporting tech startups. The program includes four special actions: “Joint Growth Program + professional capacity enhancement, industry integration and symbiosis, retail business expansion, policy support empowerment,” and implements the “Joint Growth Program” with the new “2.0” version of equity subscription rights cross-market swap, exploring a new path for tech finance with Anhui characteristics.

Today, more and more tech startups in Anhui are signing the “Joint Growth Program” with banks. By the end of January, the program had issued loans to 16,000 tech enterprises totaling 220 billion yuan, with over 3,000 cases of the “equity subscription rights swap model” and an agreed equity subscription amount exceeding 100 billion yuan.

Han Biao said that financial empowerment has improved the accessibility and convenience of financing for tech enterprises, combined with industry-oriented talent cultivation and professional services throughout the innovation chain. This not only motivates financial institutions to serve the real economy but also promotes a positive cycle of “technology-led—financial empowerment—industry absorption—talent gathering.” Moving forward, the focus will be on continuously enhancing financial innovation in science and technology to provide stronger financial support for Anhui’s development as a hub of technological innovation.