China's Guangzhou city recently announced the establishment of two funds of funds (FoFs): the CNY150 billion (US$21.8 billion) Guangzhou industrial investment FoF and the CNY50 billion (US$7.2 billion) Guangzhou innovative investment FoF. The two FoFs, with a combined scale of CNY200 billion (US$29 billion), will focus on investments in semiconductors, renewable energy, and other high-tech sectors.
Industrial and manufacturing investments have been the focus of Guangzhou for many years. According to industry sources, industrial investments in Guangzhou have surpassed CNY100 billion for four years in a row. In 2022, the manufacturing sector saw investments of CNY96.8 billion, which resulted in a 20% growth. On top of that, Guangzhou's automotive sector has been No.1 among Chinese cities in terms of productivity.
Guangzhou is the latest addition to a trend of local governments in China establishing advanced technology funds to promote the country's economic recovery, following the likes of Beijing, Shenzhen, and Hangzhou. Shenzhen proposed a "20+8" industrial fund project in December 2022, with an estimated investment scale of hundreds of billions of CNY.
Guangzhou is also definitely not the last local government to do so. The Anhui provincial government announced in January 2023 the establishment of a CNY200 billion introduction fund that will mainly invest in the tech sector. In the same month, Xi'an also announced the preparation for a fund that's also worth hundreds of billions of CNY. The investment focus of this fund will be advanced manufacturing.
Analysis pointed out that government-led funds in China weren't that uncommon. Over the past few decades, China has successfully supported the development of multiple industries through national-level funds. These local government funds are expected to help China in its tech competition with the US, reducing China's reliance on western technology and creating a self-supporting ecosystem.
Despite that, the market has a reason for concern. Established in 2014, the National IC Industry Investment Fund (a.k.a. the Big Fund) didn't produce many actual results after years of development. China's semiconductor sector is still lagging far behind the likes of Taiwan, South Korea, and the US. It's still relying heavily on imports. To make matters worse, the Big Fund was involved in a corruption scandal in 2022, with many executives still under investigation. It has caused the market and the public to have doubts about government fund operations.
Because of this, the public will be closely observing these government-backed advanced technology development funds to see if they can achieve their desired results.
Alongside the announcement of the two FoFs, the Guangzhou Industrial Development Institute was also revealed. The Institute will focus on "what Guangzhou can, what the Bay Area needs, and what the country wants," providing research backing for Guangzhou's major industrial projects.
