Big news: Government investment funds now have a “tightening curse” when it comes to “selecting projects”.
“In the past, industrial competition among regions has always been fierce, and it has become even more intense after the upsurge of new - quality productivity.” A state - owned assets staff member from a certain place in North China told Rongzhong Finance. He also emphasized that when it comes to fields such as semiconductors, artificial intelligence, and new energy, the common thought of most people is “Don't care about anything, just invest.”
What he described seems to be a true portrayal of most local state - owned assets - rushing into investment blindly and following the trend.
Such an approach is obviously wrong. Rushing into investment blindly and following the trend will only lead to serious homogenization and exacerbate industry bubbles.
To address this issue, on July 30th, the National Development and Reform Commission issued an announcement. To implement the “Guiding Opinions of the General Office of the State Council on Promoting the High - quality Development of Government - invested Funds”, strengthen the layout planning and investment guidance evaluation of government - invested funds, the National Development and Reform Commission, together with relevant parties, drafted the “Guidelines for the Layout Planning and Investment Directions of Government - invested Funds (Draft for Public Comment)” (hereinafter referred to as the “Guidelines”) and the “Administrative Measures for Strengthening the Investment Guidance Evaluation of Government - invested Funds (Draft for Public Comment)” (hereinafter referred to as the “Administrative Measures”), and is now soliciting public comments.
Two Groundbreaking Documents
The “Guidelines” emphasize that the establishment of government - invested funds should meet the requirements of building a unified national market, abandon the model with single - goal of investment promotion, and advocate reducing or canceling the investment - return ratio. In terms of investment directions, funds should follow the macro - regulation of the national productivity layout, avoid industries with structural contradictions, be vigilant against the blind following of trends and the rush in emerging industries, actively support relevant enterprises in carrying out mergers and acquisitions, accelerate technological iteration and upgrading, and help industries achieve high - quality development.
The “Guidelines” clearly define the four key support directions for government - invested funds:
First, the investment fields of government - invested funds should be in line with the encouraged industries in national industrial catalogs such as the “Catalogue for the Guidance of Industrial Structure Adjustment”, the “Catalogue of Industries Encouraging Foreign Investment”, and the “Catalogue of Encouraged Industries in the Western Region”. At the same time, they should meet the requirements of optimizing the layout and adjusting the structure of the state - owned economy, conform to the national development plan, national special plans, and regional plans, and clearly define the key investment industrial directions in the fund establishment plan.
Second, national - level funds should focus on the overall situation, concentrate on upgrading the modern industries at the national level, tackling key core technologies, and constructing major cross - regional projects, strive to make up for the shortcomings in industrial development, break through the bottlenecks in industrial foundations, and play a demonstration and leading role in a few key fields. At the same time, national - level funds are encouraged to strengthen cooperation with local funds. In the frontier technology fields and key links of the industrial chain, combined with local resource endowments, they can form a capital synergy by jointly establishing sub - funds or investing in local funds.
Third, local funds need to find their own positioning. Under the overall management of provincial governments, considering factors such as local financial resources, industrial resource bases, and debt risks, they should choose investment fields according to local conditions. Direct investment projects of newly established local funds or investment projects of their sub - funds should focus on local characteristic and advantageous industries, enhancing regional innovation capabilities, and supporting and incubating small and micro private enterprises and technology - innovation enterprises, so as to drive the effective participation of social capital.
Fourth, government - invested funds should focus on increasing the supply of high - end production capacity, concentrate on industrial technological innovation and tackling key core technologies, and promote the rapid achievement of high - level scientific and technological self - reliance. Among them, industrial investment funds should play a leading and driving role in industrial development, support the transformation and upgrading of traditional industries, the cultivation and expansion of emerging industries, and the layout and construction of future industries around improving the modern industrial system; venture capital funds should focus on developing new - quality productivity, invest in seed - stage and start - up enterprises through market - oriented means, take into account small and medium - sized micro - enterprises in the early and middle stages, support scientific and technological innovation, and solve the “bottleneck” problems in key fields.
The “Guidelines” clearly state that government - invested funds are strictly prohibited from using means such as equity - in - name - but - debt - in - fact to increase local government implicit debts in a disguised form. Except for specific situations such as mergers and acquisitions, private placements, and strategic placements, they shall not participate in publicly traded stock investments, and are prohibited from directly or indirectly engaging in derivative transactions such as futures. In addition, funds shall not provide guarantees for other enterprises or projects other than the invested enterprises, nor shall they carry out investment activities that may assume unlimited liability.
According to relevant news, the development and reform department will cooperate with other relevant departments to guide and evaluate the investment directions of government - invested funds. The specific evaluation methods for guiding the investment directions of funds will be formulated separately by the National Development and Reform Commission in conjunction with relevant departments.
According to the “Administrative Measures”, the National Development and Reform Commission, together with relevant departments, has established an evaluation index system centered on the evaluation of the policy orientation of fund investment, covering the entire process of fund operation and management, combining quantitative and qualitative evaluations, and will make dynamic adjustments according to the latest requirements of the Party Central Committee and the State Council and the latest orientation of macro - policies.
The evaluation indicators mainly cover three aspects: First, the policy orientation compliance indicators, which focus on evaluating the support degree of fund investment in key industries, new - quality productivity, scientific and technological innovation, the construction of a unified national market, green development, people's livelihood and employment, venture capital and other fields; Second, the investment layout optimization indicators, which mainly examine the implementation of the national regional strategy by the funds, the conformity with the provincial key investment field lists, and the effective utilization of funds; Third, the policy implementation ability indicators, which focus on evaluating the efficiency of fund use and the investment management level of fund managers.
The “Administrative Measures” further clarify that a negative behavior list for investment fields will be set for fund evaluation. For government - invested funds established before the issuance of these measures, if their investment fields do not meet the requirements of the “Work Guidelines”, they should, in principle, withdraw in an orderly manner after the expiration of their term. At the same time, on the basis of protecting the legitimate rights and interests of business entities and maintaining market order, relevant funds are encouraged to be integrated and reorganized.
Serious Problems of Rushing into Investment Blindly and Following the Trend
The development of China's government - invested funds has evolved from initial exploration to booming growth. As early as the early 2000s, local governments began to try to establish venture capital guidance funds. Around 2015, driven by the upsurge of “mass entrepreneurship and innovation” and supply - side structural reform, government - invested funds witnessed explosive growth, and their scale and management models have been continuously evolving and upgrading. According to the statistics of Zero2IPO Research Center, by the end of 2023, the scale of domestic government - guided funds themselves had exceeded trillions of RMB, and the total scale of social capital they actually leveraged was even more considerable. In a specific historical period, these funds indeed played a crucial and irreplaceable role.
However, with the rapid expansion of scale, some deep - seated problems have gradually emerged. Some funds had unclear goals at the beginning of their establishment, and there were even cases of pursuing short - term political achievements, which led to the dispersion of funds into too many fields and projects. In some cases, the same technological route was repeatedly invested in different regions, resulting in a waste of resources and potential over - capacity risks. For example, in previous years, some regions blindly followed the trend to launch semiconductor and new - energy vehicle projects without corresponding industrial foundations, ultimately leading to the misallocation and waste of resources.
In addition, some funds lacked rational judgment and differentiated layout strategies for so - called “hot” tracks. This led to a large amount of funds flowing into a few popular fields, causing the continuous accumulation of local bubble risks. Once the market trend fades, these over - invested fields are likely to trigger a series of risks, bringing significant impacts to relevant industries and investment institutions.
As early as March 5, 2024, General Secretary Xi Jinping emphasized when participating in the deliberation of the Jiangsu delegation at the Second Session of the 14th National People's Congress that new - quality productivity should be developed according to local conditions to prevent a rush and bubble - forming.
According to a report in the “People's Daily”, General Secretary Xi Jinping mentioned this point again at the Central Urban Work Conference. He said, “When it comes to launching projects, it's always the same few: artificial intelligence, computing power, and new - energy vehicles. Should all provinces in the country develop industries in these directions?” This question touches the core of local state - owned assets.
There are many government - invested funds in economically developed regions, and these regions often compete fiercely in the limited pool of high - quality local projects. Take the Yangtze River Delta region as an example. Cities such as Shanghai, Suzhou, and Hangzhou have each established many government - guided funds, with large scales often reaching billions or even tens of billions of RMB.
When competing for emerging industry projects, multiple funds often target a single high - quality project at the same time and compete to raise the project's valuation. The valuation of a project with a reasonable original valuation can soar several times in a short period under the pursuit of many government - invested funds.
This not only significantly increases the cost of government - invested funds themselves and compresses the subsequent profit space, but also makes it difficult for truly innovative projects in the early stage, which have potential but have not been widely noticed, to obtain start - up funds due to the over - concentration of funds on mature projects, seriously hindering the hierarchical cultivation and overall development of industries.
Many government - invested funds flock to a few popular tracks, creating a situation of “rushing in all at once”.
Taking the semiconductor field as an example, local governments have directed their funds to the core link of chip manufacturing, hoping to quickly achieve breakthroughs in chip manufacturing and share the dividends of industrial development. The influx of a large amount of funds has made the competition in chip manufacturing projects extremely fierce. The equipment procurement price has skyrocketed due to the soaring demand, and the salaries of professional talents have also been pushed to unreasonably high levels, causing the costs of some small chip - manufacturing enterprises to increase sharply and face survival difficulties. At the same time, the basic support links in the upstream of the semiconductor industry chain, such as semiconductor material R & D and equipment manufacturing, have lagged behind in development due to insufficient capital investment, unable to provide strong support for chip manufacturing, resulting in an imbalance in the development of the entire industrial ecosystem, which is not conducive to China's semiconductor industry forming a complete and powerful industrial chain advantage in international competition.
Problems such as “difficulty in investing after raising funds”, “difficulty in management after investment”, and “difficulty in exiting” also exist. Some funds face the dilemma of difficult to find high - quality projects due to unclear positioning or local protection; they have insufficient post - investment management capabilities and limited empowerment for invested enterprises; the lack of market - oriented, diversified, and smooth exit channels affects the sustainable operation of funds and the efficiency of fiscal fund recovery.
These problems not only reduce the operating efficiency and policy effects of government - invested funds themselves, but also, to a certain extent, exacerbate the structural contradictions in some fields, deviating from the original intention of their establishment.
Therefore, the introduction of the new regulations this time is a precise policy - making and systematic correction targeting these pain points.
Anti - involution Action, Right Now
When it comes to “anti - involution”, many people think that “involution is an inevitable feature of the market economy. Through competition, the survival of the fittest can be achieved, resources can be optimized, and it is beneficial to development.”
This view is a misunderstanding. Although the market cannot do without competition, there are benign and malignant competitions. The so - called “involution” is a well - known term. Currently, the official definition is: a malignant competition phenomenon in which economic entities continuously invest a large amount of energy and resources to maintain their market position or compete for limited market shares without bringing overall revenue growth. Therefore, “anti - involution” targets this kind of malignant and unfair competition behavior.
In the current economic pattern, the involution phenomenon of state - owned assets in the investment field has become a major obstacle to the efficient development of industries and the rational allocation of resources, especially in popular industrial tracks, where this problem is even more prominent.
From July 23rd to 24th, the State - owned Assets Supervision and Administration Commission of the State Council held a seminar for local state - owned assets supervision and administration commission directors in Beijing, which mentioned that they should take the lead in resisting “involution - type” competition. This is the second time the SASAC has deployed “anti - involution” work in July. At the seminar, the State - owned Assets Supervision and Administration Commission of the State Council emphasized that local state - owned enterprises should take the lead and resolutely resist “involution - type” competition. A week ago, the SASAC put forward requirements for central enterprises to continuously promote the upgrading of key industries, go beyond involution competition to maintain industrial value, highlight mutual benefit and win - win to cultivate the industrial ecosystem, and promote the continuous upgrading of the industrial system towards high - value - added and high - technology - content directions.
In fact, the state has frequently sent signals within a year, clearly demonstrating its determination to “anti - involution” and is committed to creating a healthier social development environment. The Politburo meeting on July 30, 2024, pointed out that industry self - discipline should be strengthened to prevent “involution - type” malignant competition. The “Decision” of the Third Plenary Session of the 20th Central Committee of the Communist Party of China has placed the construction of a high - level socialist market economy system in a prominent position, emphasizing “giving full play to the decisive role of the market in resource allocation and better playing the role of the government”.
At the beginning of this year, the “Guidelines for the Construction of a Unified National Market (Trial)” was officially released, clearly stating that “policies and measures that impede fair competition should be prevented from being introduced or implemented”. This year's government work report further proposed to “accelerate the establishment and improvement of basic institutional rules, break local protection and market segmentation, remove the bottlenecks restricting economic circulation in aspects such as market access and exit and factor allocation, and comprehensively rectify ‘involution - type’ competition”. On May 21st, the expert consultation group meeting of the State Council's Anti - monopoly and Anti - Unfair Competition Committee clearly proposed to comprehensively rectify “involution - type” competition. The Sixth Meeting of the Central Financial and Economic Commission held on July 1st proposed to “regulate the disorderly low - price competition of enterprises in accordance with laws and regulations” and “guide enterprises to improve product quality and promote the orderly exit of backward production capacity”. On July 24th, the National Development and Reform Commission and the State Administration for Market Regulation issued an announcement on soliciting public comments on the “Draft Amendment to the Price Law of the People's Republic of China (Draft for Public Comment)”, improving the criteria for identifying predatory pricing to regulate the market price order and address “involution - type” competition.
The intensity of “anti - involution” policies is constantly increasing, and it is expected to become a continuous investment theme. In the long run, “anti - involution” requires the construction of a unified national market, the optimization of the performance evaluation mechanism, and the promotion of high - quality production capacity of Chinese enterprises to go global. In the short term, the current “anti - involution” implementation policies have not been fully introduced, and the overall situation is still in the stage of trading expectations. Low - cycle manufacturing varieties with relatively cleared positions are expected to become the trading theme. By constructing quantitative indicators of the “involution” degree and the potential for reversal, industries with a high degree of “involution” and great potential for reversal are more worthy of attention.
This article is from the WeChat public account “Rongzhong Finance” (ID: thecapital), author: Wang Tao, editor: Wu Ren, published by 36Kr with authorization.