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The Chinese Government-Guided Fund Giving Away 100% Extra Returns

Shenshen Updated June 27, 2021


By Shenshen

 

Local governments in China have come to realize that offering capital is crucial to attract businesses and develop local economies. And they are scrambling to rubberstamp the policy documents of government-guided funds (GGF) to attract quality projects and private equity (PE) firms. These offer the following incentives:

 

  • Giving away the profits of government-led investments to private capital investors;

  • Promising mouthwatering rewards for highly competent fund managers;

  • Guiding fund managers and investments with a series of provided services.

 

On June 4, 2021, the Rui’an government formally joined that scramble, issuing “The Policy to Guide Development of Industry Investment Funds in Rui’an”. It gives preferential policies and incentives to Rui’an-registered PE houses, funds and shareholding platforms recognized by the municipal financial service center. But will it give the county-level city in Wenzhou a competitive edge?

 

The Key Incentives in the Rui’an Plan

 

The most encouraging part of The Policy is the promise to give away a maximum of 100% extra returns of government-guided industry investment funds to invested firms and projects in Rui’an. But also key is the award of up to CNY1 million to the fund managers who receive capital commitment from the local GGFs and pay back with local investments.

 

In recent years, Rui’an has been vigorously developing GGFs to leverage private capital with government capital. The focus is on the digital economy, Phoenix Action (the plan to further boost Zhejiang's high quality economy), integration into the development of Yangtze River Delta, and “The Trinity” (agricultural production, sales, and credit facility). Taking the shape of fund of funds (FoF), Rui’an GGF now has a target size of CNY10 billion. Currently, it has four invested sub-funds, whose assets-under-management total CNY4.5 billion.

 

The Policy promises rewards to newly registered funds and their senior management personnel equivalent to their value contribution to the local city per year. It also promises a registration address for the business together with a 30 m2 office room for 2 years and a “concierge service” for fund registration, such as the work involved in business registration, joint financial review and bank custody.

 

A Local Effort to Promote the Local Economy

 

“Rui’an runs even faster than Wenzhou city to choose the ‘attractive fund’ approach to attract business and promote investment. This will further promote a headquarters economy, sci&tech innovation and industrial upgrading to create a strong new engine for high-quality economic development,” says a staff member of the local Department of Finance.

 

The Policy also contains a “gift package” to attract more industries and projects: a CNY10,000 bonus for the fund manager for each recommended project that enters the investment negotiation stage, and up to CNY10 million for each project that secures investment.

 

Managers of funds that attract companies to locate in Rui’an, invest in these Rui’an-based companies and hold stakes for more than one year can expect a reward of up to CNY1 million.

 

Sub-funds receiving capital commitment from Rui’an GGF can be awarded equivalent to 1% of their investment amount when they invest in Rui’an-located businesses, but no more than CNY1 million.

 

When the GGF steps out, Rui’an-based invested firms can receive up to 100% of the extra returns. For private investors who partner with GGFs, in the first 2 years, they will receive a 50% subsidy for the interest on their loans (based on the loan prime rate).

 

A Strong Player in a Wider Game

 

Altogether, the toolkit of “fund+capital+industry” has given Rui’an a competitive edge to attract quality enterprises from the very beginning of the investment process.

 

Rui’an is located between Shanghai economic zone and Minnan Golden Triangle. This geographical advantage has helped its economy develop rapidly. In 2020, the total GDP of the city reached CNY103.709 billion, an increase of 3.3% over the previous year. Its industry sectors in 2020 were divided as follows: primary (2.5%), secondary (44.8%), and tertiary (52.7%). And its third industry was 1.2 percentage points higher than 2019.

 

Ever since 2021 kicked off, more and more GGFs have chosen less developed cities over the most privileged 1st-tier megacities to take root in.

GGFs and policies.png

Besides setting up GGFs, local governments are also releasing supportive policies for equity investment funds.

GGFs and policies 2.png 

With diverse local GGFs arising one after another, there is fresh water in the capital pool for fund managers launching new funds. Hence, 2021 might be a warm spring for the Chinese PE/VC industry.

 


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REGISTER NOW !
CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
E-mail adress
Password
l read and agree to
Terms&Conditions
Create a new account Sign up!
Forget Password
CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
Name
Surname
E-mail address
Password
Confirm password
l read and agree to
Terms&Conditions
Already have an account? Sign in!
Please go to the mailbox to approve the registration
CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
FOF WEEKLY Account terms of service
1. Members registered in this website must abide by the provisions on the administration of Internet electronic announcement service, and shall not publish information such as defamation of others, invasion of others' privacy, infringement of others' intellectual property rights, spread of viruses, political speech, commercial information, etc.
2, in all the articles published in the site, the site has the final right to edit, and reserve the right to print or publish to a third party, if your information is not complete, we will have the right to use your work published in the site without any notice.
3. During the registration process, you will choose the registration name and password. The choice of registration name shall comply with laws, regulations and social ethics. You must keep your password confidential and you will be responsible for all activities that take place under your registered name and password.
Already have an account? Sign in!
E-mail adress

The Chinese Government-Guided Fund Giving Away 100% Extra Returns

Shenshen Updated June 27, 2021


By Shenshen

 

Local governments in China have come to realize that offering capital is crucial to attract businesses and develop local economies. And they are scrambling to rubberstamp the policy documents of government-guided funds (GGF) to attract quality projects and private equity (PE) firms. These offer the following incentives:

 

  • Giving away the profits of government-led investments to private capital investors;

  • Promising mouthwatering rewards for highly competent fund managers;

  • Guiding fund managers and investments with a series of provided services.

 

On June 4, 2021, the Rui’an government formally joined that scramble, issuing “The Policy to Guide Development of Industry Investment Funds in Rui’an”. It gives preferential policies and incentives to Rui’an-registered PE houses, funds and shareholding platforms recognized by the municipal financial service center. But will it give the county-level city in Wenzhou a competitive edge?

 

The Key Incentives in the Rui’an Plan

 

The most encouraging part of The Policy is the promise to give away a maximum of 100% extra returns of government-guided industry investment funds to invested firms and projects in Rui’an. But also key is the award of up to CNY1 million to the fund managers who receive capital commitment from the local GGFs and pay back with local investments.

 

In recent years, Rui’an has been vigorously developing GGFs to leverage private capital with government capital. The focus is on the digital economy, Phoenix Action (the plan to further boost Zhejiang's high quality economy), integration into the development of Yangtze River Delta, and “The Trinity” (agricultural production, sales, and credit facility). Taking the shape of fund of funds (FoF), Rui’an GGF now has a target size of CNY10 billion. Currently, it has four invested sub-funds, whose assets-under-management total CNY4.5 billion.

 

The Policy promises rewards to newly registered funds and their senior management personnel equivalent to their value contribution to the local city per year. It also promises a registration address for the business together with a 30 m2 office room for 2 years and a “concierge service” for fund registration, such as the work involved in business registration, joint financial review and bank custody.

 

A Local Effort to Promote the Local Economy

 

“Rui’an runs even faster than Wenzhou city to choose the ‘attractive fund’ approach to attract business and promote investment. This will further promote a headquarters economy, sci&tech innovation and industrial upgrading to create a strong new engine for high-quality economic development,” says a staff member of the local Department of Finance.

 

The Policy also contains a “gift package” to attract more industries and projects: a CNY10,000 bonus for the fund manager for each recommended project that enters the investment negotiation stage, and up to CNY10 million for each project that secures investment.

 

Managers of funds that attract companies to locate in Rui’an, invest in these Rui’an-based companies and hold stakes for more than one year can expect a reward of up to CNY1 million.

 

Sub-funds receiving capital commitment from Rui’an GGF can be awarded equivalent to 1% of their investment amount when they invest in Rui’an-located businesses, but no more than CNY1 million.

 

When the GGF steps out, Rui’an-based invested firms can receive up to 100% of the extra returns. For private investors who partner with GGFs, in the first 2 years, they will receive a 50% subsidy for the interest on their loans (based on the loan prime rate).

 

A Strong Player in a Wider Game

 

Altogether, the toolkit of “fund+capital+industry” has given Rui’an a competitive edge to attract quality enterprises from the very beginning of the investment process.

 

Rui’an is located between Shanghai economic zone and Minnan Golden Triangle. This geographical advantage has helped its economy develop rapidly. In 2020, the total GDP of the city reached CNY103.709 billion, an increase of 3.3% over the previous year. Its industry sectors in 2020 were divided as follows: primary (2.5%), secondary (44.8%), and tertiary (52.7%). And its third industry was 1.2 percentage points higher than 2019.

 

Ever since 2021 kicked off, more and more GGFs have chosen less developed cities over the most privileged 1st-tier megacities to take root in.

GGFs and policies.png

Besides setting up GGFs, local governments are also releasing supportive policies for equity investment funds.

GGFs and policies 2.png 

With diverse local GGFs arising one after another, there is fresh water in the capital pool for fund managers launching new funds. Hence, 2021 might be a warm spring for the Chinese PE/VC industry.