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China has established its first comprehensive national regulatory framework for government investment funds, designed to strategically direct capital movements and prevent resource misallocation and uniform investments across regions. Announced yesterday by the National Development and Reform Commission alongside three other ministries, the framework outlines 14 policy measures detailing where and how government funds should be invested, as well as who should oversee these investments.
This new regulation directly tackles long-standing challenges within China’s fund industry, including mismatches with local resources and industrial bases, unclear strategic positioning, and excessive homogeneity in investments.
Regarding investment priorities, the framework mandates that government funds support major national strategies, key sectors, and areas where market forces struggle to operate effectively. It emphasizes promoting technological and industrial innovation, advocating for early-stage, small-scale, long-term, and technology-intensive investments. Allocation of government funds must align with significant national plans and prioritized industries, explicitly prohibiting investments in restricted, outdated, or banned sectors. Additionally, activities such as covertly increasing local government debt or investing in publicly traded stocks are strictly forbidden.
The framework also clarifies the roles of national versus local government funds. National funds are intended to foster the development of a modern industrial system, achieve breakthroughs in core technologies, address industrial weaknesses, and encourage collaboration with local funds on advanced technologies and supply chains. Local funds, on the other hand, are focused on supporting industrial upgrades, boosting innovation capacity, and nurturing small and micro private tech enterprises.
In conjunction with this, measures have been introduced to enhance the assessment and management of government investment funds, aiming to maximize their impact on national strategic objectives, industrial advancement, and fostering innovation and entrepreneurship. Evaluation results will influence budget allocations, continuation of funding, and the performance reviews of managing teams. High-performing funds will receive ongoing support, while those that deviate from their goals will be subject to corrective actions.
The overarching goal of these measures and the new framework is to shift government investments towards quality improvements and targeted development efforts rather than mere scale expansion. This approach ensures that funds are effectively aligned with China’s key strategic objectives and industrial policies. A researcher from the Chinese Academy of Macroeconomic Research emphasized that this shift aims to make government investment more purposeful, emphasizing tangible progress over sheer size.
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