Government investment funds are important policy tools for innovating the use of fiscal funds and supporting industrial development, innovation and entrepreneurship. The government sets them up by investing alone or jointly with social capital, and adopts market-oriented methods such as equity investment to guide and drive social funds to accelerate their concentration in key areas and weak links of economic and social development, such as emerging industries and small and medium-sized enterprises.

The "Decision" of the Third Plenary Session of the 20th Central Committee of the Communist Party of China proposed, "Encourage and regulate the development of angel investment, venture capital, and private equity investment, give better play to the role of government investment funds, and develop patient capital."

In order to build a more scientific and efficient management system for government investment funds and promote their high-quality development, the General Office of the State Council recently issued the "Guidance on Promoting the High-Quality Development of Government Investment Funds" (hereinafter referred to as the "Guidance"). Reporters conducted interviews on related topics.

Adhere to Problem-Oriented and Goal-Oriented Approaches to Promote the Formation of a High-Quality Development Pattern for Funds
A month ago, three affiliated funds under the Shandong provincial government guidance fund invested 95 million yuan in a local enterprise mainly engaged in IC carrier board business in the fields of high-precision, high-order and advanced packaging, helping the enterprise improve its key core technology research and development capabilities.

Government investment funds have a leveraging effect on social capital, which can achieve a lot with little effort. Wang Dongwei, the vice minister of finance, told the media in July 2024 that at the central level, large funds such as the National Integrated Circuit Industry Investment Fund and the National Manufacturing Transformation and Upgrading Fund have driven social capital and strongly supported the implementation of major national strategies. Taking the National SME Development Fund as an example, the fund has a scale of 35.7 billion yuan and has invested in 42 sub-funds, helping the invested projects to raise more than 480 billion yuan in new equity financing and investing in more than 1,200 seed-stage and start-up-stage growth-oriented SMEs.

The relevant person in charge of the Ministry of Finance said that the "Guidance" adheres to problem-oriented and goal-oriented approaches, and puts forward 25 specific measures for the whole process of fund establishment, fundraising, operation and exit, clarifies the positioning of government investment funds, improves the hierarchical and classified management mechanism, and raises requirements such as enhancing professional and market-oriented operation levels, so as to promote the formation of a high-quality development pattern of government investment funds with moderate scale, reasonable layout, standardized operation, scientific efficiency and controllable risks.

Hu Bo, an associate professor at the School of Finance, Renmin University of China, believes that the "Guidance" sends a positive signal to the market, proposes clear solutions to the pain points and obstacles that the market generally cares about, and will effectively improve the development quality of government investment funds at all levels, and then enhance the scale and vitality of the equity investment and venture capital markets, better serving the overall development situation.

Promote a Better Combination of an Effective Market and an Efficient Government and Improve Professional and Market-Oriented Operation Levels
Government investment funds can give full play to the advantages of the market mechanism, such as sensitive information, effective incentives and equal openness, and improve the efficiency of capital allocation. They can also reflect the will of the government, pool resources to do major things, make up for market failures, and achieve the coordinated efforts of the "invisible hand" of the market and the "visible hand" of the government.

The "Guidance" emphasizes promoting a better combination of an effective market and an efficient government. On the one hand, it requires highlighting government guidance and policy orientation. It is clear that funds should focus on major strategies, key areas and weak links where the market cannot fully play its role, and attract and drive more social capital. They should also optimize the investment project selection mechanism to prevent deviation from policy goals and competition with the private sector.

At the same time, it requires improving the professional and market-oriented operation level of funds. It is clear that market-oriented methods should be used to support innovation and entrepreneurship and the development of related industries, including selecting fund managers in a market-oriented way, giving full play to the role of managers, optimizing the fund development environment, encouraging the cancellation of restrictions on the registration places of funds and managers, and encouraging the reduction or cancellation of the reinvestment ratio. Regulatory actions should be regulated, and government departments should fully respect the development laws of funds and the characteristics of project investment, and not interfere with the daily management of funds and specific project investment decisions by administrative means.

In response to the problems of "limited exit channels and imperfect exit mechanisms" existing in the exit process of current government investment funds, the "Guidance" makes it clear that government investment funds should scientifically and reasonably determine the exit period and clarify the exit conditions in the articles of association or partnership agreement. They should also broaden the exit channels of funds, encourage the development of private equity secondary market funds and merger and acquisition funds, improve the ability of the New Third Board and regional equity markets to serve equity investment, and explore the simplification of project exit processes and optimize the process and pricing mechanism for the transfer of government investment fund shares. Hu Bo believes that in the aspects of clarifying the boundary between the government and the market and giving full play to the role of fund managers, the "Guidance" puts forward specific requirements based on respecting the laws of the fund industry, providing a powerful starting point for local practices.

Grow Patient Capital and Foster Innovative Enterprises in a Gradient Manner
A company in Jinjiang City, Fujian Province, which focuses on the design of WiFi radio frequency front-end chips, received the support of the Jinjiang government investment fund at its establishment, and the entrepreneurial team successfully obtained 10 million yuan in angel round investment. Later, the Jinjiang government investment fund invested more than 20 million yuan in the enterprise again and attracted 40 million yuan of social capital to invest together. "The government investment fund has accompanied us all the way to grow and expand," said Zhong Lin, the general manager of the company.

The Central Economic Work Conference held at the end of 2024 proposed, "Improve the multi-level financial service system, grow patient capital, attract social capital to participate in venture capital with greater efforts, and foster innovative enterprises in a gradient manner."

In order to develop and expand long-term capital and patient capital, the "Guidance" makes it clear that the duration of government investment funds should be reasonably determined to give play to the cross-cycle and counter-cycle adjustment role of funds as long-term capital and patient capital, and actively guide long-term capital such as the National Social Security Fund and insurance funds to invest. In areas that require long-term layout, government investment funds can adopt continuous investment methods to ensure investment continuity, and optimize the government investment ratio adjustment mechanism to boost market investment confidence.

In order to solve the problems that fund managers are afraid to invest, afraid to exit and afraid of taking responsibilities, the "Guidance" clearly establishes a sound fault-tolerant mechanism to "unbind" funds and management institutions at the institutional level. For example, optimize the full-chain and full-life-cycle assessment and evaluation system, and not simply use the profit and loss of a single project or a single year as the assessment basis. Set performance goals reasonably, focus on the comprehensive achievement of policy goals, and encourage the establishment of a fault-tolerant mechanism with due diligence and compliance liability exemption as the core, and improve the exemption determination standards and processes, and so on.

"Currently, affected by some international and domestic factors, the equity investment fund industry in China is facing new challenges in its development." Hu Bo believes that the "Guidance" reflects the encouragement of innovation and tolerance of failure in specific measures, which is highly targeted and operable, and helps to stimulate the potential of the industry, further attract long-term capital, grow patient capital, and promote scientific and technological innovation and industrial upgrading.

Optimize Fund Layout and Strengthen Regulatory Coordination
For some time, government investment funds across the country have been making continuous efforts. Many provinces and cities have initiated and launched 10-billion-level industrial funds, and some county and district-level governments have also set up government investment funds. However, the problem of government investment funds of different "sizes" flocking to popular tracks and having "homogeneous" investment fields has gradually emerged.

In response to this problem, the "Guidance" requires finding the right positioning of funds, reasonably coordinating the fund layout, and preventing homogeneous competition and crowding out social capital. It supports the construction of a modern industrial system, encourages the development of venture capital funds, focuses on investing early, in small projects, for the long term and in hard technology. It also integrates and optimizes the fund layout, encourages national-level funds to strengthen cooperation with local funds to form a capital joint force, and clarifies the hierarchical management requirements for fund establishment. County and district-level governments should strictly control the establishment of new funds, and if the county and district with better financial resources and resource endowments really need to initiate the establishment of funds, they should report to the higher-level government for approval.

The relevant person in charge of the Ministry of Finance said that the Ministry of Finance will, together with relevant departments, formulate and issue supporting rules regarding the budget and state-owned asset management, performance assessment, information statistics, credit construction and registration of government investment funds, and construct a "1+N" institutional system for government investment funds to protect the legitimate rights and interests of social capital and better play the role of government investment in supporting the high-quality development of the economy and society.（Outlook New Era）