The structure of the Technology innovation Guiding Fund is summarised as:
As of December 2017, a total of 3 major funds and 65 FOFs or sub-funds were created, amounting to a total of 114.1 billion RMB (around 14.8 billion EUR). The scale of the funds is expected to reach 300 billion RMB (around 38.9 billion EUR) in the next few years, around one-third of which invested by the central government, and the remaining to be provided by local governments at all levels, corporations, financial institutions, or other social actors. All of them are currently very active, with an average of 70 new investments concluded every month, some of which on foreign-invested start-ups or SMEs.
The Technology Innovation Guiding Fund significantly differs from the other funding pillars of the Chinese national STI funding system, as in this case the receivers of central government funds will not be the final end users of such funds (e.g. to implement R&D projects), but are special funds created ad hoc (FOFs, equity funds, VC funds, etc) to re-invest in enterprises according to market mechanisms, but in line with the priorities outlined by State policies. It thus follows a “two-level process” whereas:
By contrast, the other pillars are characterised by a “one-level process” consisting of applicants applying to direct government funding for implementing research projects. This key difference is vital for understanding the Technology Innovation Guiding Fund, especially with regards to its positioning in relation to the other national funding programmes.
Unlike the first three funding pillars at the national level, no pillar-wide regulations or management measures have been issued for the Technology Innovation Guiding Fund: each specific fund and sub-fund has its own management framework, and investment decisions are conducted relatively independently by the funds’ managing firms.
No unified websites or platforms were created for the pillar, and related information is not integrated onto the National S&T Service Platform, making existing information highly-fragmented and scattered among different websites or press releases.
The Venture Capital Guiding Fund for Emerging Industries (“EI Fund”) was established in January 2015. * The total size of the EI Fund will amount to 200 billion RMB (around 25.9 billion EUR), 40 of which is to be invested by the central government, and the remaining to be provided by local governments and social actors.
The official authority of the EI Fund is the EI Fund Council, located within the NDRC, and formed by representatives from NDRC, MOF, MOST, MIIT, SASAC, and social investors. It works under the co-chairmanship of NDRC and MOF.
The EI Fund participates in equity funds (“EI equity funds”), which are created ad hoc after being selected through public bidding. The EI equity funds’ daily operations are delegated to professional managing firms. These invest mainly in other FOFs or venture capital funds (VC funds), which in turn re-invest in innovative enterprises operating in one of the strategic emerging industries listed in the 13th Five-year Plan on National Strategic Emerging Industries. ** 80% of the investments will be directed to enterprises in early- and start-up stages; the remaining 20% to enterprises in their expansion stage. Investments follow market principles, without the government’s direct intervention. This complex mechanism is summarised as:
Three EI equity funds were created by November 2017, with a scale amounting to 70 billion RMB (around 9 billion EUR). A detailed list of the funds, including of their shareholders and daily management firm, is included in chapter 5.1 of the Guide for EU stakeholders available at this link.
* The name of the fund in Chinese is: 国家新兴产业创业投资引导基金. No website or platforms currently exist for the EI Fund.
** These include: ICT, advanced manufacturing, new materials, biology, new energy vehicles, new energy, energy-saving and environmental technologies, and digital innovation industries.
The National Fund for Technology Transfer and Commercialisation (“NFTTC Fund”) was established in July 2011. * According to its legal framework – the Interim Measures for the Management of the National Fund for Technology Transfer and Commercialisation, issued by MOST and MOF (link) – the purpose of the NFTTC Fund is to support the transfer and commercialisation of scientific results (new technologies, products, techniques, materials, etc.) achieved under national and local government funding. This is done through supporting the establishment of venture capital sub-funds (hereinafter referred to as “VC sub-funds”); credit risk compensations; and performance awards.
Similarly to the EI Fund, the NFTTC Fund features a combination of central government funds, local government funds, and funds from enterprises, financial institutions, and other social actors. It abides by the principles of “performing a guiding, indirect, not-for-profit, and market-oriented role”. It targets and supports the commercialisation of results and technologies included in the National Science and Technology Achievement Database. ** It thus also aims to strengthen the link with other government funding programmes, particularly by making sure that scientific results generated under these are translated into concrete commercial products.
The highest managing authorities of the NFTTC Fund are MOST and MOF. The NFTTC Fund consists of a supervising body, the NFTTC Council, and a professional managing agency responsible for the daily management and operation of the Fund – the National S&T Venture Capital Development Centre.
VC sub-funds are the main medium through which the NFTTC operates. These are selected through public bidding to MOST and MOF, are registered as limited partnerships, and managed by a professional managing firm. They in turn invest directly in enterprises. Currently, 14 venture capital sub-funds are active.
Each VC sub-fund specialises in different industries, and at least 50% of the total investments should be done in enterprises legally registered in mainland China and which focus on the commercialisation of results included in the National S&T Achievement Database.
As of January 2018, a total of fourteen VC sub-funds have been established, totalling an amount of 24.7 billion RMB (around 3.1 billion EUR), around 23% of which are provided by the central government. A detailed list of the funds, including of their shareholders and daily management firm, is included in chapter 5.2 of the Guide for EU stakeholders available at this link.
* The name of the fund in Chinese is: 国家科技成果转化引导基金. The NFTTC Fund is the only major fund under the fourth funding pillar with its own website.
** The name of the database in Chinese is: 国家科技成果转化项目库. It contains detailed information on S&T results in all regions and industries. S&T results generated under national funding projects will automatically be inserted in (except those involving state secrets), while those under local-level funding programmes will be included only after approval of relevant bodies. Website.
The National Fund for SME Development (“SME Fund”) was established in September 2015 by the State Council, with the purpose of supporting and boosting the mass innovation and entrepreneurship of SMEs.* The total size of the SME Fund will amount to 60 billion RMB (around 7.7 billion EUR), one-fourth of which is to be directly invested by the central government, and the remaining to be provided by local governments at all levels, private and state-owned corporations, and financial institutions.
The official authority of the SME Fund is the SME Fund Council, located within the Department of SMEs of MIIT, working under the co-chairmanship of MOF, MIIT, MOST, NDRC, and the State Administration of Industry and Commerce (SAIC).
Through the establishment of FOFs (“SME FOFs”) and direct investment, the SME Fund invests in priority sectors in highly-competitive manufacturing industries featuring high market failure risks and evident spill-over effects. The focus is especially on growth-oriented SMEs in seed and start-up stages, largely through private equity investments supporting moderate series B financing or beyond. Each SME FOF should give particular attention to (i) investing in the Jing-Jin-Ji, Yangtze Economic Belt, or the One Belt, One Road regions; (ii) solving bottlenecks and weaknesses that hinder SMEs’ core competitiveness; and (iii) increasing the supply-side quality and standards to cope with the increasing improvements and diversification of consumption standards.
Four SME FOFs have been established under the SME Fund (“SME FOFs”) as of November 2017 through public bidding, and totalling an amount of 19.5 billion RMB (around 2.52 billion EUR). A detailed list of the funds, including of their shareholders and daily management firm, is included in chapter 5.3 of the Guide for EU stakeholders available at this link.
* The name of the Fund in Chinese is: 国家中小企业发展基金. No website or platforms currently exist for the Fund.
The processes through which such funds and sub-funds conduct investments remain relatively complex. Relevant documents only regulate the processes through which each of the three major funds under this funding pillar (EI Fund, NFTTC Fund, and SME Fund) identify, select and conclude investments in sub-funds (equity funds, VC funds, FOFs, etc). These are usually recommended by managing firms, and approved by their board of partners (in which the central government should participate in view of its average 20% to 30% shares).
On the other hand, however, it is not clear how these sub-funds (equity funds, VC funds, FOFs) will, in turn, re-invest in enterprises – i.e. the final receivers and beneficiaries of this funding pillar. Relevant documents only outline what the areas and targets are in which investments should be channelled, and stress that all of them should operate according to market mechanisms, with no government intervention.
It should be noted that, in addition to the central government, financial institutions or corporate actors also participate in all the sub-funds (equity funds, VC funds, FOFs) under this funding pillar, suggesting that a certain return on investments is expected. Limited government intervention, centrality of managing firms, and the for-profit nature of these funds suggest that technologically-advanced international actors with large prospects of growth are well-positioned to become targets of such investments, as long as they meet the necessary conditions outlined by the government (e.g. innovative enterprises in the strategic emerging industries listed in the 13th Five-year Plan on National Strategic Emerging Industries; enterprises commercialising scientific results included in the National S&T Achievement Database, etc).
In fact, an analysis of the investment portfolios of all currently-existing sub-funds (equity funds, VC funds, FOFs) confirm that numerous foreign-invested enterprises have successfully received investments.
Statistics show that:
It should however be noted that the vast majority of these were done on Chinese-majority joint ventures, mostly with Hong Kong-based partners. Numerous cases were identified of investments conducted on enterprises founded and controlled by ethnic Chinese foreign nationals. Only in very limited cases, the chairman or legal representative of foreign-invested beneficiaries was a non-Chinese foreign national.
Although evidence of investments on Western wholly foreign-owned enterprises has yet to be identified, these funds are still considered to offer good opportunities to European actors, especially entrepreneurs or scientists looking to enter the Chinese market in cooperation with Chinese partners, or for multinational corporations to establish joint ventures with local partners for technology transfer and commercialisation projects.
European actors are strongly advised to approach the funds’ management firms (contacts for some funds are easily accessible online): each funds’ daily operations are conducted independently by their managing firms: they identify, select and recommend potential investments to their board of partners.
Cooperation potential with such managing firms exist, especially in view of their determination to meet the country’s strategic needs of turning domestic companies into global competitors, acquiring high- and new-technologies, and expanding into international markets.
A table summarising all the numerous funds (sub-funds, etc) currently-existing under this funding pillar, indicating their area and region of investments, the number of investments concluded as well as the percentage of those done on FIEs, is provided in Annex 5.2 of the Guide for EU stakeholders available at this link.