Abstract Nowadays China is in the process of intellectual property rights (IPR

Chong Ren

Dengpan Yao

Shu Yang

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International Journal of Business and Social Science                                                Vol. 5, No. 12; November 2014 
74 
 
1The Role Analysis of Government in Intellectual Property Rights Pledge and 
Financing of Technological Small and Medium-sized Enterprises 
 
Shu Yang 
Master Student 
School of Public Affairs 
University of Science & Technology of China 
Hefei, Anhui (230026) P.R C 
 
Yuanguang Fu 
Associate Professor of Asia-Pacific Policy Research Center 
 
Dengpan Yao 
PHD Student 
University of Science & Technology of China 
 
Chong Ren 
PostDoc & Director of Asia-Pacific Policy Research Center 
University of Science & Technology of China 
Hefei, Anhui (230026) 
China 
 
 
 
Abstract 
 
Nowadays China is in the process of intellectual property rights (IPR) strategy formulation, for government, to 
correctly play a role in IPR pledge financing of technological small and medium-sized enterprises(SMEs), 
deciding the building of IPR exchanging market. On the basis of defining the related basic concepts, this paper 
analyzes and compares the roles of domestic and abroad governments played in IPR pledge financing, concludes 
government’s problems exist in IPR pledge financing of technological SMEs of our country, at last provides some 
countermeasures. 
 
Keywords: technological small and medium-sized enterprises; intellectual property rights pledge; government; r
ole analysis 
 
Introduction 
 
As the main body of market economy, technological small and medium-sized enterprises (SMEs) usually have 
advanced technology, patent, copyright for core assets, and lack physical assets available for mortgage. In 2006, 
based on characters of SMEs, the Bank of Communications Beijing branch first launched intellectual property 
rights pledge loan, provided a new road for pledge financing of SMEs. And how the government to play a role of 
incubator in SMEs’ intellectual property rights pledge financing, becomes the focus of research. 
 
1. Relevant Concepts 
 
1.1 Technological Small and Medium-Sized Enterprises  
 
According to “the Law of Promoting Small and Medium-sized Enterprises of China”, small and medium-sized 
enterprises (SMEs) refer to the lawfully established enterprises of various ownership and forms within the 
territory of the People's Republic of China to meet the needs of the society, increase employment, in line with the 
national industrial policy, the production and business operation scale belongs to small and medium-sized. 
Different industries have different standards. 
 
                                               
This work was supported by Natural Science Fund project of Anhui province; the name of this project is the Approach of 
Implementing the Strategy of Innovation Driven Development——Collaborative Innovation Research (NO.1408085QG145). 
© Center for Promoting Ideas, USA                                                                                                www.ijbssnet.com 
75 
 
At present we do not have a unified definition for science and technology enterprises, It is generally believed that 
science and technology enterprise is a science and technology economic entity with science and technology 
personnel as the main body, is mainly engaged in technology development, transfer, consulting, services, training 
and technology intensive products development, production and sales. At present assets structure of China's SMEs 
has the following two characteristics: first, fixed assets are relatively small, thus lack of reliable financing 
channels. Second, intellectual property, intangible assets account for larger proportion of enterprise assets, so it’s 
difficult for them to apply for pledge loans. 
 
1.2 Intellectual Property Rights Pledge Financing 
 
Intellectual property rights (IPR) pledge financing refers to a way of financing that a enterprise use IPR as pledge 
to get loans from commercial banks, meanwhile, contracts the loan interest, deadline and repayment method. The 
pledge mainly includes: the trademark rights pledge, the patent pledge, copyright pledge, computer software 
copyright pledge, etc 
 
1.3 The Possibility of IPR Pledge 
 
1.3.1 Government's Policy is gradually perfect 
 
First of all, legally, the 75th article of China's “Security Law” explicitly stipulates the IPR which can be 
transferred by law: trademark rights, patent rights and copyright rights. Secondly, on the system, the 
establishment and development of modern enterprise system, provides a good social basis for starting the 
business. 
 
1.3.2 IPR Assessment System is Gradually Mature 
 
China successively promulgated “the Intangible Assets Assessment Criteria”, “the Notice of Strengthening 
Intellectual Property Assets Appraisal Management Issues”, “the Property Law of the People's Republic of 
China”, etc. The laws clearly stipulated the pledged property problem in IPR financing, which make the 
intellectual property asset valuation more scientific, standardized, accurate. 
 
1.3.3 The Gradual Formation of the Trading Market 
 
In 2010, China's State Intellectual Property Office assessed 43 of the existing national patent technology 
exhibition trading centers, among them 30 centers have successfully passed the examination and acceptance. The 
gradual formation and perfect of IPR trading market provides a professional service platform for IPR pledge and 
financing, so that various subjects such as technology-based SMEs, banks, intermediary service institutions can 
complete capital financing and pledge on an orderly and stable trading platform. 
 
2. Role Analysis of China and Foreign Governments 
 
IPR pledge and financing is a practical response to China’s strategy of science and technology and rejuvenating 
the country. As a leader and ministrant beyond IPR trading market, the government's role should not be ignored. 
For reasonable positioning of government role, promoting the recognition of new loan policy , perfect IPR trading 
market and sharing credit risk between banks and enterprises, the role of government must be defined. 
 
2.1Foreign Governments Involved in IPR Financing 
 
2.1.1 American Mode 
 
To promote intangible assets pledge such as IPR pledge, the United States established the federal small business 
administration (SBA) to provide guarantee for technological SMEs, that many enterprises obtain the chance of 
financing. 
 
The SBA induce commercial banks to offer loans for SMEs through cooperation in a guarantee way. For small 
loans SBA provides 80% guarantee, for big loans to provide 75% guarantee, loan maturities can last for 25 years. 
As a bridge that crosses banks and technology-based SMEs, SBA bears no property credit risk after provide 
opportunities for SMEs, merely strengthen the credit of original enterprises. Nowadays, IPR pledge loan has 
already become a basic business for commercial banks and other commercial lenders (mainly loan companies). 
 
2.1.2 Japanese Mode 
 
Japan relies on government policy banks and credit guarantee associations to establish a government-leading 
pattern of IPR pledge financing.  
 
International Journal of Business and Social Science                                                Vol. 5, No. 12; November 2014 
76 
 
The government-backed Development Bank of Japan plays the dominant role of government in SMEs' pledge 
financing, as lenders, DBJ directly provides intangible assets financing loans for some SMEs which have 
abundant intellectual property assets but lack of funds. In addition, it takes a risk sharing of banks through 
undertaking loans together with financial institutions. What’s the most important is the securitization and 
commercialization of IPR, which can not only add channels for IPR realization, but also increase the enthusiasm 
of the financial institutions for IPR pledge financing. 
 
2.1.3 Swedish Mode 
 
Swedish IPR pledge business does not get a big progress due to the over-reliance on policy-based loan from 
government. In Sweden, the commercial banks pay attention to the quality requirements, so they have a strict eye 
on loan assessment review. However, for fostering enterprise purposes, government relatively loosens the quality 
requirements for IPR guarantee, therefore, although the policy loan amount is small, intellectual property owner is 
more willing to seek for government loans. In the long term, without business organizations’ assist, the burden of 
government will be sharpened, nor will IPR pledge get a better development. 
 
2.2China Governments Involved in IPR Financing 
 
Table 1: The Role Analysis of China Government in IPR Pledge and Financing of Technological SMEs 
 
 
Government 
Mode 
Representatives Function  Risk taker Financing 
marketiza-
tion degree 
 
Characteristics 
Direct 
intervention 
type 
Xiangtan, 
Nanjing, 
Neijiang, Nanhai 
Executive 
orders, 
instruction 
intervention 
Bank Low Simple and efficient, fast, 
effective; against the 
market rules, bank risk; 
prone to corruption 
Economic 
subsidy type 
Shanghai, 
Chengdu 
Fiscal 
subsidy, 
special funds 
Government Middle Broaden the financing 
channels, reduce the risk 
of financial institutions; 
Limit the long-term 
development 
Policy support 
type 
Beijing, Wuhan Bank 
leading, 
government 
assist 
Both bank 
and 
government 
High Complements Banks' 
funding costs and risk 
sharing, on the premise of 
fully respecting the market 
for auxiliary, guarantees 
the bank's enthusiasm 
 
2.2.1 Direct Intervention Type 
 
This is a government-leading type requires financial institutions to provide IPR pledge financing and loans for 
SMEs government recommended, and government fully tracks the whole process to get feedback. It mainly exists 
in second and third-tier cities of China, such as Xiangtan city, defines a working way professional departments 
actively participate in cooperation by establishing a department-jointly-pushed working mechanism and the joint 
conference system of finance and science and technology. The IPR pledge financing of Neijiang city in Sichuan 
province is also under strong administrative intervention of government. 
 
2.2.2 Economic Subsidy Type 
 
The government of Shanghai and Chengdu separately take fiscal fund subsidies of loan interest and set up a 
special fund to prevent risks. The Pudong new area government in Shanghai yearly arranges 20 million for setting 
up special funds in order to ease the IPR pledge loan risk. While Chengdu government annually takes special 
funds from the three charges of science and technology for IPR pledge loan guarantee. If there is a default, 
productivity promotion center will bear a loss of 90%, and banks bear a loss of only 10%. 
 
 
 
© Center for Promoting Ideas, USA                                                                                                www.ijbssnet.com 
77 
 
2.2.3 Policy Support Type 
 
To push the new financing method of property rights pledge, local governments have formulated all kinds of 
normative documents. Zhongguancun administrative committee carried out the document “the Suggestion About 
Accelerating IPR Pledge Work of Zhongguancun National Innovation Demonstration Area ”in 2009, formally put 
IPR pledge into agenda, and provided discount loans proportionably according to different enterprises’ credit 
"star", the benchmark interest rate of loans for general subsidies ranges from 20% to 40%. On May20,2009, 
Intellectual Property Office of Wuhan city and the Wuhan branch of people's bank of China jointly issued the 
"Patent Pledge Loan Operation Guidelines of Wuhan City", regulated and promoted the IPR pledge of SMEs. 
 
3. The Reason for the Dislocation of Government's Role 
 
3.1 The Imperfection of Laws and Regulations 
 
Government’ financial subsidies and incentives for IPR pledge of technological SMEs are far from enough. 
Although the pledge can be trademark right, patent right, copyright and layout-design right of integrated circuits, 
most of the local government still lack differentiated support policy based on the IPR category. The regulatory 
documents about power division among central government and local government are few, which leads to the 
high concentration of power and increases time costs and capital costs of SMEs’ IPR pledge financing. 
 
3.2 The Lack of Intangible Assets Financing Experience 
 
Although the IPR pledge policy has been carried out for a long time, its pledge and financing has not become the 
main source of corporate loans because of the variability and intangibility of IPR. Secondly, the management 
talent gap is big, the IPR pledge still lack a talent team for professional skills and practical knowledge. A 
functional organization is also required for coordination. 
 
3.3 The Difficulty for IPR Assessment 
 
First, China lack of a perfect, scientific, unified IPR assessment system and management standard, so we can not 
accurately assess the value of IPR. Second, currently there are three methods for evaluating IPR: cost method, 
market comparison method and income present value method, different assessment methods and institutions lead 
to different results. Thirdly, Intermediaries themselves lack of assess ability and experience to support intellectual 
property evaluation. 
 
3.4 The High Risk for IPR Financing 
 
The imperfection of China’s financial market, the absence of SMEs’ financing channels, the deficiency of capital 
market, make SMEs lack of funds in a high risky environment. It’s difficult for risk market to seek unity and 
standardization because of the complexity of risk control. SMEs can not have quick, accurate and effective 
communication with banks due to their system is not sound and information acquisition is not in time, that add 
difficulty for IPR to liquidate. 
 
4.Countermeasures of IPR Pledge and Financing for Government  
 
The government plays a indispensable role in SMEs’ IPR pledge and financing as server, promoter, vindicator 
and supervisor. For, government, we can do as the following aspects. 
 
4.1 Adjust Measures to Local Conditions, Implement Policy of Characterization 
 
Under the premise of government guidance and market leading, regard the patent pledge as the breakthrough 
point, gradually improve relevant laws, regulations and policies, promote IPR pledge business characteristic and 
specific. The government should focus on process of pledge registration, evaluation and market transaction, 
formulate operation rules and standards, make them applicable and operable. We can also conduct a characteristic 
IPR market mainly embodied with patent rights through enlarging pilot areas, constructing trading platform, 
constructing the pledge registration channel, building enterprise credit databases, and encouraging financial 
institutions to lend. 
 
4.2 Setting up a Diversified Pledge Mode with Various Participants 
 
(1) Absorb more stakeholders into the establishment procedure of local administrative regulations, let all 
commercial institutions, the mediation guarantee agencies, SMEs participate in the hearing to ensure the 
effectiveness, comprehensiveness, timeliness and pertinence of the policy. At the same time, to set up a IPR 
pledge financing service system completely including assessment, pledge and transactions. 
International Journal of Business and Social Science                                                Vol. 5, No. 12; November 2014 
78 
 
(2) We should gradually establish a market-oriented IPR pledge loan mode under the government’s help. 
Nowadays in China we can conclude the SMEs’ credit guarantee system to”a whole, two wings, three-tier”. “a 
whole” means to regard the SMEs’ credit guarantee system in a city, province and country, “two wings” indicates 
commercial guarantee agencies and mutual guarantee agencies aiming at SMEs in urban and rural communities, 
“three-tier” means in guarantee system, there are three service targets: SMEs’ credit guarantee institutions at the 
provincial level, SMEs’ credit guarantee institutions at the city level, the community mutual guarantee agency and 
commercial guarantee institutions. 
 
4.3 Introduce Science and Technology; Build a Network Service Platform for IPR Pledge Financing 
 
(1) Set up a stable management network service system of SMEs’ IPR pledge financing, construct a dynamic IPR 
database for column sorting, to provide a user login system for enterprises, banks, intermediaries to search 
results, so information can be shared and disclosed to every user. 
(2) Accelerate the construction of SME network credit system. Build rating system and credit system of SME 
pledge financing. Although China has introduced some stipulations and files for IPR pledge registration, but 
it’s difficult to work in specific operation because of IPR’s abstraction which add problems for getting 
feedback. Building a network credit system for SMEs can not only provide reference and basis for banks to 
offer loans, but also regulate and formulate the pledge financing market of IPR. 
(3) Establish a database of talents specialized in intellectual property. Put certified public valuer, industry experts, 
legal experts and scholars into the talents database so that enterprises can get counsels. 
 
5. Conclusion 
 
In the process of implementation of IPR pledge financing, the government plays an important role. As a 
government department, it should not only to provide a certain amount of subsidies, reduce the financial burden of 
enterprises, but also focus more on building a good intellectual property trading environment. Based on this 
situation, this paper suggests to cultivate a regulating and controlling role for government in IPR pledge and 
financing, establishes a market-oriented operation platform consist of government, banks, guarantee agencies, law 
firms and enterprises, etc.  
 
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The Role Analysis of Government in Intellectual Property Rights Pledge and Financing of Technological Small and Medium-sized Enterprises

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The Role Analysis of Government in Intellectual Property Rights Pledge and Financing of Technological Small and Medium-sized Enterprises

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