The Promise and Pitfalls of Government Guidance Funds

Forthcoming at The China Quarterly

27 Pages Posted: 17 Sep 2022 Last revised: 9 Jan 2023

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: August 25, 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: US-China competition, technology, industrial policies, government guidance funds, policy gap

Suggested Citation

Wei, Yifan and Ang, Yuen Yuen and Jia, Nan, The Promise and Pitfalls of Government Guidance Funds (August 25, 2022). Forthcoming at The China Quarterly , Available at SSRN: https://ssrn.com/abstract=4200771

Yifan Wei (Contact Author)

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

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

Yuen Yuen Ang

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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