China’s government is deploying massive amounts of capital in an effort to “catch up with and surpass” the United States in advanced technology. As part of this effort, the Chinese government has invested financially and politically in government guidance funds [政府引导基金], public-private investment funds that aim to both produce financial returns and further the government’s industrial policy goals. As of the first quarter of 2020, Chinese officials had set up 1,741 guidance funds, with a registered target size of 11 trillion RMB (1.55 trillion USD). However, these funds had only raised a total of 4.76 trillion RMB (672 billion USD) from private and public sources.

While guidance funds’ ambitions are clear, their long-term prospects for success are not. Drawing exclusively on Chinese language sources, this issue brief examines how guidance funds raise and deploy capital, manage their investments, and interact with other public and private actors. We find that many guidance funds are poorly conceived and implemented, and that the mechanism as a whole is often inefficient. Nonetheless, these funds have many advantages over traditional industrial policy mechanisms, and they are unquestionably helping mobilize money and other resources for new businesses and emerging technologies.