China’s State Council announced it will create a 40 billion yuan investment fund to support innovative startups in emerging industries. This decision came forth during an executive meeting presided by Li Keqiang, the current Premier of the State Council. The meeting stated 4 important aspects about the fund:

  • The RMB 40 billion fund will combine existing government funds for infrastructure and emerging industries, with large companies and financial institutions contributing as well.
  • Fund management companies will be selected through public bidding and will be the sole decision-makers in investments. The chosen companies will also be responsible for investment management and operations.
  • The investment fund ‘can work with existing funds of local or leading industrial companies through shareholding’. This seems to indicate that the investment fund can also be used for projects that already receive government subsidies.
  • Dividends will be distributed after investment is recouped and non-government investors will have priority. The government can surrender a part of the profits and prioritize the recouped capital in running the fund.

The service industry and its need for access to Big Data and Internet of Things (IoT) technology is specifically mentioned, as are transportation, energy saving and environmental protection.

State Council Infogram

State Council Executive Meeting Infogram

According to Zhao Xijun, vice dean of the School of Finance, Renmin University, the official part of the fund will focus on its ‘guidance’ function. In other words, the government aims to attract investment rather than replace the role of the market-based resource allocation system.

It is the first time that the State Council creates an entrepreneurship capital fund. This policy is expected to help adjust the construction of China’s financial system. It will be interesting to see if China will decrease it’s R&D subsidies or that those subsidies will remain as high as they were and that this fund will be an additional financial boost to indigenous innovation.

Source: The State Council