On January 7, the General Office of the State Council officially issued new guidelines aimed at fostering high-quality development of government investment funds. For stakeholders in the primary market, these guidelines address persistent challenges in government-guided funds, such as extending performance evaluation cycles, eliminating fund creation for investment promotion alone, diversifying exit channels, and enhancing fault-tolerance mechanisms. These measures also aim to alleviate pain points experienced by domestic market-oriented investment institutions in recent years.
For some time, the venture capital industry has been humorously likened to a “player without a seat at the table” due to the scarcity of official guidance specific to the industry. In this context, the newly issued guidelines—the first national-level directive for government investment funds—set a foundational tone by emphasizing alignment with major strategies, key sectors, and addressing market deficiencies. The primary objective is clear: to attract and mobilize more capital.
The guidelines also mark a departure from the historically localized structure of government investment funds, shifting toward “improved, rational, and optimized” coordination efficiency. For leading funds, this represents a promising development, repositioning government funds as “guides” rather than “leaders,” simplifying communication and collaboration. However, for smaller funds, the changes may exacerbate existing fundraising challenges.
To explore this topic further, 36Kr spoke with Guo Libo, the founder of LP Institute, and Zhang Tian, the founding partner of AMG Financial Group. The insights shared in this article are drawn from their discussions.
Is there an alternative to attracting investment?
Article 17 of the guidelines explicitly states that government investment funds should not be established solely for investment promotion purposes. Instead, it encourages removing restrictions on fund registration locations and strengthening credit constraints in accordance with laws and regulations.
In recent years, declining land-based fiscal revenues have driven many local governments to use government investment funds as a tool to achieve economic growth metrics, often turning sub-fund general partners (GPs) into “unofficial investment promotion offices.” This practice has led to malicious competition, redundant construction, and resource wastage due to overcapacity. By steering away from investment promotion as the sole objective, the guidelines encourage local governments to utilize government funding and industrial expertise to attract capital. This will likely raise the bar for local governments in revitalizing existing industries.
Zhang Tian, founding partner of AMG Financial Group, predicts that regions lacking established industrial chain advantages will face greater challenges in investment promotion, reinforcing existing disparities in the national industrial landscape. Furthermore, investment promotion has historically been a straightforward performance metric for local governments. Without this tool, regions transitioning from land-based to equity-based financing may find themselves lacking critical financial mechanisms.
Guo Libo, founder of the LP Institute, highlights a significant implementation challenge: identifying timely, objective metrics for evaluating industry enablement at the grassroots level. He notes that acquiring such data will require considerable time and research.
Overlapping without overreach
Article 15 calls for improved fund performance management, emphasizing the achievement of policy goals, while Article 16 introduces a fault-tolerance mechanism to accommodate normal investment risks and optimize evaluation systems across the investment lifecycle.
In practice, equity investments by local governments are often tightly constrained by terms like “no loss of state assets” and “lifetime accountability.” This cautious approach has spurred a wave of buyback lawsuits and limited the operational flexibility of fund managers. While fault tolerance policies exist in some regions, their practical application often sees inconsistencies among state-owned entities, auditing bodies, and fund managers.
“Pure fiscal funds are relatively flexible, but once state-owned assets are involved, stricter oversight applies. Often, funding attributes are intertwined, influencing managers’ perceptions,” Guo said. He believes that, in line with the guidelines, China’s Ministry of Finance will likely issue more detailed rules regarding local government performance and fault tolerance, the National Development and Reform Commission will emphasize credit-building and data reporting, and the China Securities Regulatory Commission will focus on registration and filing processes.
“Professionalization and marketization of government investment funds are not new concepts in the guidelines, but implementation will undoubtedly require multi-departmental collaboration.”
Avoiding diminishing returns
The guidelines underscore the need for tiered and categorized fund management mechanisms to rationalize fund layouts and prevent homogeneous competition and the crowding out of private capital. Article 17 specifically mentions optimizing the development environment in alignment with the national unified market initiative.
Previously, a lack of top-down coordination resulted in widespread homogeneity and intense competition among localities. This phenomenon reflects a societal shift into an era of stock economics. While the guidelines aim to balance national coordination with orderly local competition, reconciling industrial guidance across regions with differing resource endowments remains a significant challenge.
Zhang foresees a Matthew effect, where central enterprise funds and funds in developed regions with industrial advantages gain strength, potentially marginalizing smaller regional funds and hindering industrial upgrades in less developed areas.
Balancing risks
Article 3 of the guidelines encourages the growth of venture capital funds, emphasizing their role in fostering new productive forces, supporting technological innovation, and prioritizing early-stage, small-scale, long-term, and deep-tech investments.
Currently, domestic government investment funds are imbalanced, with an overabundance of industry-guided funds and a notable shortage of venture capital funds. This discrepancy arises from local governments’ conservative risk preferences and the higher economic leverage offered by industry-guided funds.
Looking ahead, as the guidelines take effect, venture capital funds are expected to gain increased policy support. To avoid swinging from one extreme to another or encountering undue risk, implementing robust oversight mechanisms and fault-tolerance rules will be critical.
Guo suggested that government investment funds should embrace the responsibility of becoming evergreen funds, ensuring continuity from early-stage investments through follow-on and recycled investments. Furthermore, the guidelines should be supplemented with concrete mechanisms that incentivize and provide tangible benefits to venture capital funds, transforming policy objectives into actionable support.
The guidelines also stress the importance of government investment funds playing a guiding and policy-oriented role while adhering to principles of marketization, legalization, and professionalism.
In his interview with 36Kr, Guo highlighted that China’s government investment funds are unmatched globally in both quantity and scale—a distinction born not of choice but as a reaction to a contracting primary market in recent years, which has necessitated increased government involvement.
Now, the guidelines articulate a clear directive: “Give full play to the decisive role of the market in resource allocation, better leverage the role of the government, and promote the integration of an effective market and a capable government.” This requires local governments—often seen as “patrons” or “key benefactors” by GPs—to shift their mindset. Instead of leading, the government must focus on guiding and serving as a reliable pathfinder.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Chen Zhiyan for 36Kr.