China targets $8.7b for guidance fund to drive SOE reform

Other backers include the State-owned Assets Supervision & Administration Commission (SASAC) for Zhejiang province and the municipal government of Hangzhou, the capital of Zheijiang. The first phase of fundraising is expected to attract commitments of RMB30 billion, according to Xinhua News Agency. Other capital contributions will come from SOEs and commercial investors.

The fund will pursue SOE restructuring through mixed-ownership reforms and M&A of listed entities and also support the development of companies in emerging industries. More than 450 SOEs are listed in the first batch of investees, among them Zhejiang Asset Management, Zhejiang Fuchun Ziguang Environmental Protection, and Zhejiang High-Speed Information Engineering Technology.

The mixed ownership reform initiative, whereby private investors buy stakes in state-run companies with a view to helping them improve operational efficiency, was introduced in 2013. As a result, government guidance funds tasked with stimulating economic growth through SOE restructuring - as well as backing new economy industries - became a feature of the Chinese PE landscape.

Between July and September of 2016, three state-sponsored renminbi funds together received around $39 billion. Renminbi-denominated vehicles accounted for $90.5 billion out of the $117.9 billion raised for China-focused funds that year. They included the China State-owned Enterprises Restructuring Fund, which launched with a target of RMB350 billion and initial contributions of RMB131 billion. A similar vehicle backed by the Guangzhou government, with a target size of RMB150 billion, was established in 2017.

China Reform Holdings is a common denominator across many of these funds. It was established in 2012 by the central SASAC to participate in the reform of struggling SOEs. As of 2018, it had RMB370 billion in assets.

However, in the past 18 months, guidance funds have been conspicuous in their absence. In 2018, capital entering renminbi vehicles dropped to $32 billion, the lowest level in five years. The largest close by a local currency fund was RMB30 billion for a Beijing government-backed fund-of-funds that focuses on technology. 

Questions have also been asked about the activities of guidance funds. A report released by research firm Gavekal Dragonomics at the end of last year found that almost 40% of these vehicles had issues deploying or raising capital, with some not making any investments at all.

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• Topics
• Greater China
• Funds
• Renminbi fund
• China
• Fundraising
• Renminbi