Mergermarket Explores SOE Capital's Impact on China's Technology Sector at AVCJ Private Equity Forum

SOEs and Government Funds Lead China's Tech Investment

At the AVCJ Private Equity Forum held in Beijing, investment guru Fang Fenglei brought attention to the heavy reliance of China’s technology sector on capital from state-owned enterprises (SOEs) and government-backed funds. According to Fang, nearly 80 percent of last year’s investments in the tech realm came from such sources, signaling a potential future crisis for the industry.

Investment Contradictions

Fang pointed out that the pursuit of long-term growth through patient funds often fails, which contradicts China's Partnership Enterprise Law. This law prohibits SOEs from acting as general partners in private companies, yet they circumvent this by using subsidiaries for investments, breaching legislative intent.

Call for Change

• Proposal for a national-level fund of funds to align with the law.
• Highlight the difference between risk-averse state funds and the high-risk nature of
• venture capital.

As Fang emphasized, the landscape requires adjustments to prioritize compliance while fostering innovation.

Future of Dollar-Denominated Funds in China

Fang predicts a resurgence of US dollar-denominated funds in China's tech sector, estimating they could reclaim about 30 percent market share, should regulations continue to favor such investments.

Opportunities in Clean Tech

Eddie Chen from Temasek Holdings' Fullerton Fund acknowledged uncertainties but recognized clean tech as a promising investment area less affected by international tensions.