- Two newly launched state-backed funds underscore Hefei’s long-term strategy of using public capital to build strategic industries
- From BOE and CXMT to Nio, the city has become one of China’s most closely watched experiments in government-led venture investing
Hefei, capital of Anhui Province, has added two more state-backed investment funds to its growing portfolio, reinforcing a venture-style industrial strategy that has transformed the eastern Chinese city into one of the country’s most successful manufacturing hubs.
On July 13, Hefei launched the 5 billion yuan ($738 million) Hefei Chantou New Domains Equity Investment Partnership Vehicle, backed by the city’s core state investment vehicles, including Hefei Industrial Investment Capital, the municipal venture capital guidance fund and Hefei State-owned Assets Holdings.
Ten days earlier, another 1-billion-yuan semiconductor-focused fund was registered by Hefei Construction Investment Group together with Anhui’s provincial next-generation information technology fund.
The launches are routine additions to what local officials call Hefei’s “fund forest”—an ecosystem of overlapping government-backed funds designed to finance companies throughout their life cycles.
The bets that reshaped a city
Hefei’s investment playbook dates back nearly two decades.
In 2008, the city committed roughly one-third of its annual fiscal revenue to bail out display maker BOE Technology (京东方), funding China’s first sixth-generation LCD production line at a time when the company was losing money.
The investment helped lay the foundation for what later became one of China’s largest display manufacturing clusters.
Hefei’s reputation as “China’s venture capital city” was cemented in 2020, when it led a 7 billion yuan rescue investment in Nio (蔚来) after the electric-vehicle maker teetered on the brink of collapse.
The city concluded that while Nio faced acute financial distress, the long-term prospects for electric vehicles and the company’s technology remained intact.
The gamble paid off. Nio bounced back, and later achieved quarterly profitability. Hefei has since continued investing across the automaker’s chip and battery businesses.
Alongside its earlier support for BOE and cumulative cash injection of around 30 billion yuan into memory chip maker CXMT (长鑫存储), the investments helped build Hefei’s industrial ecosystem spanning semiconductors, displays and electric vehicles.
Building a ‘fund forest’
The investments are supported by an unusually dense network of government-backed funds.
By the end of China’s 14th Five-Year Plan period (2021-2025), Hefei’s state-owned investment system managed more than 170 funds with a combined registered size exceeding 280 billion yuan, of which more than 140 billion yuan had been contributed.
Together they have invested in more than 2,100 projects.
Three flagship state investment platforms divide responsibilities: Hefei Construction Investment backs strategic anchor projects, Hefei Industrial Investment develops supply chains, while Xingtai Holdings provides integrated financing services ranging from equity and debt to guarantees and leasing.
The newest 5-billion-yuan fund is expected to target sectors such as AI, new energy, advanced manufacturing, commercial space, quantum technology and the low-altitude economy.
From attracting companies to cultivating ecosystems
Rather than relying solely on tax incentives to lure companies, Hefei has increasingly focused on creating a capital ecosystem that supports startups from inception through commercialization.
Its “relay investment” model connects seed funds, angel funds and industrial funds so companies can continue raising capital without leaving the local ecosystem.
The city has also become one of China’s most aggressive early-stage investors, allowing loss tolerance of up to 50% for seed funds and 40% for angel funds—among the highest levels nationwide.
Earlier this year, Hefei announced three additional 10-billion-yuan fund clusters dedicated to technology incubation, emerging industries and future technologies, with investment horizons extending up to 20 years.
From BOE and CXMT to Nio, Hefei’s strategy has evolved from attracting marquee companies to systematically cultivating industrial ecosystems.
This approach involves using public capital not simply to finance businesses, but to shape entire supply chains and reinvest the returns into the next generation of strategic industries.
