Fund for SOEs in place to spur innovation

The launch in late October of a special fund dedicated to investing in centrally administered State-owned enterprises engaged in strategic emerging sectors marks a significant step in advancing China's innovation-driven growth, officials and experts said.

The special fund to assist central SOEs to develop strategic emerging industries, officially launched on Oct 29, was initiated by the State-owned Assets Supervision and Administration Commission of the State Council and entrusted to China Reform Holdings Corp Ltd, a State-owned investment firm, for establishment and management.

The move has met the conditions for investment and will help accelerate the development of strategic emerging industries, SASAC said at the launch.

The fund's first-phase size is 51 billion yuan ($7 billion), with China Reform Holdings planning to contribute around 15 billion yuan. The investment period is five years, and the management and exit period is eight years. The investment period may be extended by up to two years, meaning the overall duration could be as long as 15 years.

Li Zhen, vice-chairman of SASAC, said accelerating the development of strategic emerging industries is a mission entrusted to central SOEs by the central authorities, and the establishment of the special fund is a crucial move to support their growth.

Li emphasized that the fund aims to better align capital with industrial and innovation chains, and to facilitate the optimization of the layout and structural adjustment of the State-owned economy.

He expressed hope that China Reform Holdings will live up to its mission and expectations, go all out to operate the fund effectively, make new and greater contributions to the development of strategic emerging industries, and set a benchmark for State-owned industrial funds.

In recent years, China's manufacturing sector has accelerated its shift toward greater sophistication, intelligence and sustainability, expediting the formation of new quality productive forces and injecting fresh momentum into the steady and positive performance of the industrial economy.

According to the latest value-added tax invoice data released by the State Taxation Administration, corporate investment in innovation continued to increase in the first three quarters, strategic emerging industries expanded steadily and sales revenues in integrated circuit manufacturing, robot manufacturing and unmanned aerial vehicle manufacturing rose year-on-year by 17 percent, 21.7 percent and 69.8 percent, respectively.

Beijing Vice-Mayor Sun Shuo said at the launch ceremony for the special fund that the city's government will fully support the fund's development by strengthening innovation enablement and improving support systems to provide a favorable environment for its growth.

Sun said he expects the fund to inject greater momentum into Beijing's economic and social development.

Li Xuenan, professor of finance and director of the China Industrial Policy Research Center at Cheung Kong Graduate School of Business, said such government-guided funds can effectively address market failures in financing high-risk, high-externality sectors such as new energy, biotechnology and high-end equipment manufacturing.

By leveraging professional fund managers and focusing on long-term development rather than short-term returns, these funds not only concentrate private capital, but also stimulate new company entries in target sectors and along the supply chain, generating sustainable industrial upgrading, Li said.

As a special fund to promote the accelerated development of strategic emerging industries among central State-owned enterprises, the fund will support efforts to address weak links in industrial chains, advance frontier innovation, strengthen core functions and enhance core competitiveness.

SASAC said in a news release that priority support will go to artificial intelligence, aerospace, high-end equipment and quantum technology, as well as key areas of future industries including future energy, future information and future manufacturing.

Compared with subsidies or tax incentives, Li said, government-guided funds provide a more efficient and self-sustaining approach to industrial policy.

Furthermore, to maximize impact, transparency, professional autonomy, and a focus on high-research and development-intensity sectors will be key to ensuring that public capital catalyzes lasting innovation and competitiveness in China's strategic emerging industries, Li added.