Chinese guidance fund secures $21b in LP commitments

The Hong Kong-listed arm of China's CRRC Corporation, the world's largest supplier of rail transit equipment, will lead the fund, according to a statement. It will be known as the National Manufacturing Transformation & Upgrade Fund.

The statement refers to an initial commitment from investors of RMB7.36 billion - or 5% of the total corpus - but it goes on to outline how much each LP will put into the fund, suggesting the existence of binding agreements.

The Ministry of Finance will contribute RMB22.5 billion as the largest investor. China Development Bank Capital will put in RMB20 billion, with China National Tobacco and China Insurance Investment Fund II each committing RMB15 million. Other investors include investment arms of the Beijing, Zhejiang and Hubei municipal or provincial governments, China Pacific Life Insurance, First Automobile Works Group, Shanghai Electric, and CRRC.

CRRC did not specify which entity would be responsible for managing the fund. Xinhua News Agency noted that the government previously raised RMB20 billion in 2016 for an advanced manufacturing investment fund - a successor vehicle of RMB50 billion has reportedly been established - managed by the State Development & Investment Corporation (SDIC). Beijing is said to have wanted CRRC specifically for this new vehicle.

Government guidance funds tasked with stimulating economic growth became a feature of the Chinese private equity landscape from 2016. Between July and September of that year, three state-sponsored vehicles together received $39 billion. 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.

Guidance funds have faded somewhat as the renminbi fundraising environment has stuttered. 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 focused on technology. 

However, in May of this year, China Reform Holdings supported the launch of a vehicle with a target of RMB60 billion and an SOE restructuring remit. China Reform Holdings is a common denominator across many of these funds. It was established in 2012 by the central State-owned Assets Supervision & Administration Commission (SASAC) to participate in SOE reform.

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
• Renminbi fund
• Greater China
• Fundraising
• Industrials
• China
• Fundraising
• manufacturing