CX Daily: Venture Capital in China Flounders as State Takes Over (Part 2)
TOP STORIES
Funds?/
The growing drumbeat of complaints about the dominance of government guidance funds (GGFs) in China’s venture capital (VC) and private equity (PE) industry and the distortions they have created in the allocation of investment have finally prompted the country’s top policymakers to intervene.
The State Council, the central government headed by Premier Li Qiang, issued a set of guidelines on Jan. 7 with 25 specific measures to address long-standing problems in areas including the objectives and management of the funds, and the rigid system for evaluating fund managers and the performance of their investments. ?
Davos?/
Chinese Vice Premier Ding Xuexiang vowed that China will treat foreign-invested companies and domestic firms equally, in a show of the top leadership’s determination to reassure foreign investors.
Speaking at the World Economic Forum (WEF) Annual Meeting in the Swiss town of Davos on Tuesday, Ding emphasized the importance of continued reform and opening up, listing it as one of the major trends that characterize the Chinese economy.?
FINANCE & ECONOMY
China is planning to inject at least 100?billion yuan ($13.7?billion) in insurance funds into its stock market in the coming months, as part of state-backed efforts to attract long-term investment to strengthen the market, according to the country’s top financial regulators.
“We are preparing to approve 50?billion yuan in the coming days, before the Chinese New Year, to be immediately invested in the stock market,” said Xiao Yuanqi, vice-minister of the National Financial Regulatory Administration, at a Thursday press briefing.?
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Finance Movers and Shakers?/
BRIEFING
A rundown of the news making headlines in and around China:
Green power: China built a huge amount of sustainable power capacity in 2024, increasing concerns of overcapacity in the industry. A record-breaking 277 gigawatts of solar power and 79.34 gigawatts of wind power were added — year-on-year growth of 28% and 4.5%, respectively. China’s combined cumulative installed solar and wind power capacity now stands at over 1.41 terawatts, surpassing the country’s 1.2 terawatt target for 2030. While China has the most installed capacity of any nation, it is still grappling with the inherent instability of wind and solar power generation and how to reconcile that with demand. Meanwhile, manufacturers of equipment such as solar panels are facing narrowing margins in the saturated domestic market, with some firms selling below cost to clear inventory. As a result, many major players are now looking to overseas markets for growth.
Flying cars: Electric vehicle manufacturer XPeng Inc.’s flying car subsidiary is partnering with island province Hainan to build related infrastructure for aerial tourism. XPeng Aeroht announced Tuesday that it will work with local authorities to establish more than 40 “flying camps” and create a nearly 1,000-kilometer aerial tourism highway. China’s central and local governments are pushing hard to develop the “low-altitude economy,” which refers to the role of things like unmanned drones and electric vertical take-off and landing (eVTOL) aircraft in industries such as transportation, logistics and tourism. The country is already the world’s leading designer and maker of aerial drones, boasting trailblazing firms including consumer drone-maker SZ DJI Technology Co. Ltd. But while there are plans for the necessary airspace reform, actual measures have not yet been implemented. Low-altitude flights need to apply in advance and obtain approval from the air traffic control department, a time-consuming and cumbersome process.
Seres profits: Chinese carmaker Seres Group Co. Ltd. expects to have more than quadrupled revenue last year to as much as 146.7 billion yuan ($20 billion) and booked an up to 6 billion yuan net profit, reversing a record 2.45 billion net loss in 2023. The company attributed the turnaround partly to its electric vehicle marque Aito, a brand developed in partnership with Huawei Technologies Co. Ltd., which supplies its smart driving software system. Huawei has rapidly expanded its influence in the auto industry in recent years through a variety of partnership models. But its cooperation with Seres is unique in that Huawei is dominant, leading decision-making in areas including product design, quality control and sales. Seres sold 426,900 new-energy vehicles in 2024, up 183% on the year. These include Aito’s three M5, M7 and M9 models.
Foreign finance: China is taking another step in opening up to the world. The central bank and several other state departments announced pilot plans to allow foreign financial institutions to offer new types of financial services in certain free trade zones, treating them the same as domestic institutions. The pilot zones are in regions including Beijing, Shanghai and Tianjin. The authorities also pledge to permit free and delay-free inward and outward remittances of funds related to foreign investors’ investment in the pilot areas as long as they are authentic and compliant.
State-backed investment: China plans to significantly increase long-term investment in its stock market through a variety of state-backed initiatives, according to a Thursday press briefing. These include trying to get major state-owned insurance companies to allocate 30% of their annual new premiums to the Chinese mainland’s A-share market starting this year and ensuring at least 10% annual growth in mutual funds’ holdings of tradable A-shares over the next three years. As a result, at least several hundred billion yuan in long-term capital will be added to the stock market annually. Beijing has rolled out various measures to help boost the stock market recently, but it remains volatile with both major Shanghai and Shenzhen indexes trending down over the past month.
Real estate support: More and more of the countless half-built apartment blocks standing lifeless across China are edging toward completion thanks to a government whitelist that helps eligible projects get funding. As of Jan. 22, 5.6 trillion yuan of loans had been approved under the mechanism, supporting the construction of 14 million housing units. The whitelist was launched last January. But while the policy appears to be good news for the real estate market, it has created tension between officials desperate to rescue their stagnant local property markets and financial institutions under political pressure to hand out credit. Lenders fear that extending credit to projects in a depressed market is high-risk and could saddle them with more bad loans. ?
GALLERY
The rise of AI and its global implications dominated the discussion at a Caixin-hosted CEO luncheon Tuesday in Davos, Switzerland. The closed-door event, which took place during the WEF’s annual meeting, brought together dozens of global leaders including former U.S. Treasury Secretary Lawrence Summers, Hong Kong Financial Secretary Paul Chan and Primavera Capital Chairman Fred Hu. Those attending shared their views on matters ranging from shifts in geopolitics — particularly in U.S.-China relations — to global cooperation on trade, health and the climate.