China establishes $5b SME support fund
China has launched a government guidance fund intended to support small and medium-sized enterprises (SMEs) with initial capital commitments of RMB35.75 billion ($5 billion).
National SME Development Fund is expected to achieve a final close of around RMB100 billion and tap private sector LPs, local media reported. The Ministry of Finance has contributed RMB15.2 billion to the first close, with other commitments coming from 13 state-owned enterprises (SOEs) and government agencies.
Shanghai Guosheng Group and China National Tobacco Corporation have each put in RMB5 billion, with RMB3 billion contributions coming from Shanghai Pudong Innotek Capital and China Life Insurance. Other backers include a Chengdu local government guidance fund, E Fund Asset Management, and two subsidiaries of People's Insurance Company of China (PICC). Hong Kong-listed PICC Life said in a filing that it would invest RMB300 million.
The fund has an investment period of four years and a lifespan of 10 years. There is scope for a three-year extension. It is one of various government efforts to support SMEs that have suffered due to COVID-19. SMEs are responsible for 80% of China's jobs, over 60% of GDP, 50% of tax revenue, and 70% of technological innovation, according to government statistics.
In June 2019, the Ministry of Industry & Information Technology (MIIT) held a preparatory meeting for a fund-of-funds targeting SMEs. Last November, it issued a proposal for the vehicle. Yeyang Yang, a MIIT researcher, said that 80% of the National SME Development Fund would be deployed in funds managed by third-party GPs and 20% would go into direct investments.
Government guidance funds tasked with stimulating economic growth became a feature of the Chinese private equity landscape in 2016 and 2017 but then faded. Last November, the Ministry of Finance launched a RMB147.2 billion fund to invest in the manufacturing sector. Earlier vehicles have targeted SOE restructuring, with a few - such as the China State-Owned Venture Capital Fund - focusing on SMEs.
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