China’s technology sector relies heavily on capital from SOEs, government funds
Investment guru Fang Fenglei said the situation could lead to ‘a big problem’ in the industry because it goes against existing Chinese law
Fang, founder and chairman of Chinese private equity firm Hopu Investment Management, said on Wednesday at Mergermarket’s AVCJ Private Equity Forum China event in Beijing that roughly 80 per cent of investments in the country’s tech sector last year came from funds backed by the government and SOEs.
Although some government guidance funds have set up so-called patient funds, which prioritise long-term growth instead of short-term financial returns, “most of them are not able to do it”, Fang – widely known as China’s “first investment banker” – said at the event.
The current state-of-affairs is a “sharp contradiction” that could lead to “a big problem” in the industry because it goes against China’s Partnership Enterprise Law, enacted in 2007, that bars SOEs from becoming general partners of private businesses, he said.
SOEs have managed to circumvent that restriction by conducting investments through subsidiaries, which Fang maintains as “against the legislative intent”.
Fang suggested the creation of a national-level fund of funds – a scheme that invests in a portfolio of other investment funds – to comply with mainland’s Partnership Enterprise Law and prevent local governments from solely focusing on their own regional growth plans.
