China IP: Currently it seems that appraisal, an important step in pledge financing, does not have a fully open market and is mainly limited to some fixed appraisal institutions. Is that true in Beijing?
Liu Zhengang: Appraisals are specifically conducted by IP appraisal companies in the society. However, at present not many IP appraisal companies qualify. In Beijing appraisal is mainly conducted by Liancheng Assets Appraisal Co., Ltd., which is mainly determined by the market. We also hope to have more IP intermediary institutions to join the sector.
China IP: In terms of a specific appraisal, will there be large discrepancies in appraised value between different appraisal institutions?
Liu Zhengang: This is indeed a big problem in intangible assets appraisal. It is no exaggeration to say that this is a common problem the world faces, and is a global, historical and practical problem as well. But how can we find a solution to the discrepancies between appraisal companies? As a matter of fact, a company which conducts an appraisal shall also be joining in the chain of IP pledge loans. In the meanwhile, it means that the company shall bear corresponding liabilities for any appraisal mistakes. In this way, everyone shall be as cautious as possible in any appraisal. One thing we fear most is that when an appraisal conducted by a company is over, the step is deemed over, another company steps in to help to get loans, only to find that the appraised value is too large to be practical, then ensuing liabilities will shift to others or to the society. Preferably, greater caution may be ensured in the appraisal through mutual constraint in interests.
China IP: Judging from current developments of IP pledge financing in China, the main incentive to promote the development of the business comes from the governments. The governments not only formulate polices, but also take charge of promotional work at times. What is your view on the governments’ role?
Liu Zhengang: Based on the present situations, there are three types of governments in the promotion of IP pledge financing across China. The first type lists enterprises as main players, namely, a relatively complete business chain is formed from within. All rights shall be shared by banks, enterprises, appraisal institutions including insurers, and all obligations shall also be borne by them as well. We term this type as a market-driven mode of pledge financing. The second type involves governments, or some agencies entrusted by governments, which play a very important role. To be specific, the governments help with formation of such a system, namely, rights shall be shared by the relevant entities and the corresponding obligations shall be borne by them and the governments as well. And we define this type as a government-driven type. The last mode is that no qualifications exist for a market-driven pledge loan, in the meanwhile, the governments are not willing to be involved completely in such a chain, it is, therefore, a half-driven type. There are mainly such three types. BJIPO mainly belongs to the first type, namely, the market-driven type.
China IP: Does the market-driven type leave the government nothing to do?
Liu Zhengang: The government does not quit at will, but keeps watchful eyes on the beginning and ending of every procedure. At the outset, we have done a lot of preliminary work to push forward large-scale cultivation of pledge loans. We, first of all, allow banks to accept the lending mode of IP intangible assets. Then we need to nurture intermediary institutions, including appraisal centers, appraisal companies and specialized law firms. When all these elements are formed, the problem is how to make the elements associated with each other and then operational. During the process, we are not directly involved in the rights regime, but we keep a close eye and adjust their relationship with a view of pushing for a positive change. I think, judging from conditions of Beijing, that is, the number of IP ownership and quality of ownership are relatively better, and there are many banks. Furthermore, intermediary institutions, either our IP appraisal companies, or specialized law firms, are of high quality. Given that, I think that Beijing government shall not go too upfront in the promotion of IP pledge financing. We should try our best to stimulate active elements of the market, making them an organic and rational whole. I am mainly concerned about that the government shall not participate too much in economic activities in the market operations on the sole basis of passion and good will. As regards this issue, I think the government should do less instead of more, and prefer “say” to “do” if necessary.
China IP: In terms of concrete measures by the government, we would like to know what measures are taken by the Beijing government.
Liu Zhengang: Currently there are mainly two measures. One is provision of subsidies to enterprises, why? Because the enterprise is a small and medium-sized enterprise which has limited finances and needs to get loans from banks. In this way, some interest levied on the enterprise may be relieved to encourage it to get bank loans in a bold manner. On the other hand, since guarantee companies are also new phenomena, and many of them dare not offer guarantees in a bold manner. Therefore, the government will grant some subsidies to the guarantee companies. In the event of any insurance payment claims, the government will provide certain proportionate compensation to encourage more bold guarantees. The current policies are directed to consider banks more which are now not courageous enough to lend because they are not familiar with pledge financing and feel it is too risky. We just want to provide a sense of safety to banks through adoption of policies. In this way, banks can lend in a bold manner. We call it IP pledge financing turnover capital. For example, if a bank lends one million to an enterprise which shall make repayment within a reasonable period of time. However, the enterprise encounters problems and is suddenly no longer able to make such repayment, for example, in a financial crisis, what shall we do? The bank, through its own coordination within the statutory time limit, may enable the enterprise to make repayment as scheduled. In the event that partly repayment is made and the balance is acceptable, the government will assume the role of a bank and offer a turnover period to the enterprise and repay the balance to the bank, so that the enterprise may get an extended repayment period, which also helps to take a number of other remedial measures. Another question is that if an enterprise ultimately fails to repay its loans within the time limit, I must dispose of its pledge rights. Its trademarks, as well as patents, may be auctioned. After the auction, if the balance can be repaid and then everything is over. If the amount fails to repay the balance in full, I repay 700,000 and the auction price is only 400,000, what shall I do? At that time I am afraid that the insurance company shall repay the balance.
