The Promise and Pitfalls of Government Guiding Funds

Posted: 29 Mar 2021 Last revised: 25 Aug 2022

See all articles by Yifan Wei

Yifan Wei

I.H. Asper School of Business, University of Manitoba

Yuen Yuen Ang

Johns Hopkins University

Nan Jia

University of Southern California - Marshall School of Business

Date Written: June 21, 2022

Abstract

In 2005, the Chinese government deployed a new financial instrument to accelerate technological catch-up: government guidance funds (GGFs). These are funds established by central and local governments partnering with private venture capital to invest in state-selected priority sectors. GGFs promise to significantly broaden capital access for high-tech ventures that normally struggle to secure funding. The aggregate numbers are impressive: by 2021, there were more than 1,800 GGFs, with an estimated target capital size of USD 1.52 trillion. In practice, however, there are notable gaps between policy ambition and outcomes. Our analysis finds that realized capital fell significantly short of targets, particularly in non-coastal regions, and only 26 per cent of GGFs had met their target capital size by 2021. Several factors account for this policy implementation gap: the lack of quality private-sector partners and ventures, leadership turnover, and the inherent difficulties in evaluating the performance of GGFs.

Keywords: China, US-China competition, technology, government guiding funds, state capitalism

Suggested Citation

Wei, Yifan and Ang, Yuen Yuen and Jia, Nan, The Promise and Pitfalls of Government Guiding Funds (June 21, 2022). Available at SSRN: https://ssrn.com/abstract=3812796

Yifan Wei

I.H. Asper School of Business, University of Manitoba ( email )

181 Freedman Crescent
Winnipeg R3T 5V4, Manitoba R3T 5V5
Canada

Yuen Yuen Ang (Contact Author)

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Nan Jia

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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