China’s government is pouring resources into guidance funds [政府 引导基金]. These public-private investment vehicles seek to mobilize massive amounts of capital in support of strategic and emerging technologies, including artificial intelligence (AI). They have attracted enthusiastic support from across China’s government—and prompted both concern and skepticism among outside observers.
To understand whether these funds are actually delivering on their ambitious goals, we conducted an in-depth study drawing on hundreds of Chinese-language sources. We found that many guidance funds are indeed poorly conceived and implemented, and that the model as a whole is often inefficient. Nonetheless, we also found that these funds have many advantages over traditional Chinese industrial policy mechanisms, and they are unquestionably helping mobilize money and other resources for emerging and strategic industries. The guidance fund model is no silver bullet, but it should not be casually dismissed.
Our separate report provides in detail an examination of the guidance fund model and how it is working—and not working—based on original Chinese-language sources.* This paper presents the essential findings from our aforementioned full-length report. In the following sections, we describe the guidance fund model, explain its intended benefits and observed weaknesses, and assess its prospects for success. We conclude by highlighting several indicators that can help gauge whether guidance funds are trending toward success or failure.
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*For sources and the full text of the quotations used this paper, see our full length analysis. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds” (Center for Security and Emerging Technology, March 2021).