China’s State Council has decided to establish a state venture capital fund with as much as RMB40 billion (US$6.5 billion) in capital to help support innovation and to upgrade its industrial sectors, according to a statement posted on the Chinese government’s official website.
The fund will utilize capital from the central government’s fiscal budget and infrastructure investment funds, as well as attracting private capital from major enterprises, financing institutions and other sources.
No timing of the fund’s establishment has been disclosed.
The fund will hold an auction to select one or several professional fund management companies to operate the vehicle. Initially, it may consider co-investments or partnering with other investment funds to invest in emerging start-ups in early stages.
Private investors will enjoy priority treatment in terms of dividend distribution. State capital can accept sacrificing certain investment returns in order to attract high quality capital, says the statement.
The Chinese government, including its various ministries and local provincial governments, have launched nearly 200 funds as of June 2014 to help drive policy priorities, according to data quoted by Chinese media reports.
The Ministry of Science and Technology and the Ministry of Finance have both established policy investment funds to support small and medium enterprises (SMEs). The National Development and Reform Commission has partnered with a number of provincial and city governments to joint establish dozens of venture capital funds.
Most recently, Xiamen city, located at the southeast coast of China in Fujian province, said it planned to establish a RMB10 billion (US$1.62 billion) industry fund to steer more social capital toward the development of ten major industries including biomedical sciences, new materials, finance and shipping.
