Government-Guided Funds in China: Financing Vehicles for State Industrial Policy

Tianlei Huang (PIIE)



Beijing’s ambitious Made in China 2025 program continues to draw scrutiny and criticism, despite its dropping the use of that provocative slogan. Concerns have arisen over the Chinese government’s expanding financial support for industry, particularly targeting high-tech and advanced manufacturing sectors.

For all these concerns, it has been difficult for the rest of the world to track the Made in China effort because its implementation is overseen by an estimated 1,600 government-guided investment funds making investments across thousands of companies in chosen advanced industries. Except in the high-priority semiconductors area, it is not clear whether there is much central control over investments by local government-guided funds, which are undertaken with little transparency, opening the risks of corruption and lack of accountability for potential misallocation of resources.

Although information about these investments is publicly available in some cases, greater transparency is urgently needed to ensure efficient and effective use of state capital and to establish accountability at a time when China’s involvement in the private sector has attracted concern around the world. The fact that government-guided funds endowed with hundreds of billions of dollars in capital have emerged as engaged investors in China’s equity investment market lends urgency to that concern. Most government-guided funds do not even have their own websites, and their investments are barely known to the public—except for the cases where publicly traded companies are involved.

The 2019 budget report submitted to the National People’s Congress (NPC) stressed that the government would “give full play to the leveraging role of government funds in guiding capital and resources toward key areas of strategic importance.” According to Zero2IPO Research, a consultancy focused on China’s venture capital and private equity, China was home to over 1,600 government-guided funds with more than RMB4.05 trillion (US$584.8 billion)[2] in capital by the end of 2018. On average, 7.57 new government-guided funds are created every month, and each fund has close to RMB2.5 billion (US$360.99 million) in capital.

Making matters more complicated, the funds are mostly financed by central and local governments, large state-owned enterprises, and state-owned financial institutions. The state encourages private capital to participate in these investments, but according to the National Development and Reform Commission (NDRC), as long as the government is one of the investors, the fund should be considered a government-guided fund and the government needs to assess its performance. The Shanghai Integrated Circuit Industry Fund, for example, is a joint effort by Shanghai Municipality’s Venture Capital Guiding Fund and the private Summit View Capital. Interestingly, the Taiwanese chip designer MediaTek Inc. also has an RMB300 million (US$43.32 million) stake in the Shanghai Integrated Circuit Industry Fund.

Government-guided funds primarily make equity investments in nonlisted companies and startups in chosen sectors. In some cases, these funds also invest in listed companies through private placements in the secondary market and mergers and acquisitions. The NDRC lists seven areas that government-guided funds are encouraged to invest in: (1) nonbasic public services, such as higher education and culture and entertainment, (2) infrastructure, (3) social housing, (4) environmental protection, (5) underdeveloped regions, (6) strategic emerging industries and advanced manufacturing industries, and (7) innovation and entrepreneurship. In recent years, most visible investments made by these funds have focused on the last two areas.

As noted in The State Strikes Back: The End of Economic Reform in China? by Nicholas R. Lardy, the National Integrated Circuit Industry Investment Fund, sometimes called the “Big Fund,” is one of the best known government-guided investment funds. It was created in September 2014 following the promulgation of the Outline of the Program for National Integrated Circuit Industry Development by the State Council in July that year. In its initial round of fundraising, the Big Fund collected RMB138.72 billion (US$20.03 billion), well above its announced RMB120 billion (US$17.33 billion) target. The Big Fund’s largest shareholders include the Ministry of Finance (36 percent) and several state-owned enterprises—China Development Bank Capital Corporation (22 percent), China Tobacco (11 percent), Beijing E-Town International Investment and Development Corporation (10 percent), and China Mobile (5 percent).[2] The fund makes equity investments in promising semiconductor companies (mostly private), sometimes coinvesting with local government-guided funds and private venture capital. It is also a major shareholder in many local government-guided funds, including the Beijing Integrated Circuit Manufacturing Fund and the above-mentioned Shanghai Integrated Circuit Industry Fund.

The Big Fund is charged with creating national champions in semiconductors. The most notable transaction was the US$780 million buyout of Singapore-listed STATS ChipPAC by Jiangsu Changjiang Electronics Technology Co. Ltd. in October 2015. With US$240 million from the Big Fund and US$150 million from a subsidiary of Semiconductor Manufacturing International Corporation or SMIC (in which the fund was the second largest shareholder), Jiangsu Changjiang Electronics acquired STATS ChipPAC, the world’s fourth largest chip-packaging and testing firm by market share at the time, and turned itself into the world’s third largest in this field overnight.

The Big Fund invested in more than 70 companies and projects during its first phase of investment from September 2014 to August 2018. A dozen of them are now public companies listed on the Shanghai, Shenzhen, Hong Kong, and NASDAQ stock exchanges (see table 1). In most cases, the fund’s investment did not change the companies’ ownership status, and almost all companies in which the Big Fund invested remained private, which was in accordance with a statement made by the president of the Big Fund, Ding Wenwu, four years ago that the Big Fund did not seek to be the largest shareholder in companies it invested in.

Table 1 The Big Fund’s Shareholding in Listed Companies
Company name

Place of listing

Share of the Big Fund (percent)

Tongfu Microelectronics Shenzhen Stock Exchange


Jiangsu Changjiang Electronics Technology Shanghai Stock Exchange


Semiconductor Manufacturing International Hong Kong Stock Exchange


Hunan Goke Microelectronics Shenzhen Stock Exchange


Beijing BDStar Navigation Shenzhen Stock Exchange


Sanan Optoelectronics Shanghai Stock Exchange


Gigadevice Semiconductor Shanghai Stock Exchange


Smit Holdings Limited Hong Kong Stock Exchange


NAURA Technology Shenzhen Stock Exchange


Hangzhou Changchuan Technology Shenzhen Stock Exchange


Shenzhen Goodix Technology Shanghai Stock Exchange




Source: Wind Financial Information.

There is one exception, however—the above-mentioned Jiangsu Changjiang Electronics. It was a private-owned enterprise until the Big Fund became the largest shareholder (19 percent) and SMIC became the second largest shareholder (14 percent). The company’s management also changed with the Big Fund’s investment. Currently, among the six directors of the board, two work for the Big Fund and two for SMIC. Only one director had served on the board before the Big Fund’s investment was made.

The Big Fund has launched a second round of fundraising to raise around RMB200 billion (US$28.88 billion). By the end of April 2018, the fund had already secured nearly RMB120 billion. Earlier in 2019, the Zhejiang provincial government pledged RMB15 billion (US$2.17 billion). It seems the Big Fund will soon reach its second-phase fundraising target, allowing it to continue to play an active role in propelling the development of China’s semiconductor industry.

In May 2019, the NPC Standing Committee (NPCSC) released its first ever five-year plan on overseeing the State Council’s management of state assets. Government-guided funds will be covered in the State Council’s comprehensive report to be submitted to the NPCSC in 2020 at the earliest, according to the plan. This is good news for improving accountability, but it is too early to tell if the NPCSC oversight is going to be a meaningful way to scrutinize these financing vehicles for the state’s industrial policy.


1. The exchange rate used to convert renminbi to US dollars in this post is as of June 14, 2019.

2. Data are from Wind Financial Information.

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