More localities issue debt to fund venture investments
More local governments are issuing special-purpose bonds (SPBs) to support venture capital (VC).
The latest: The Guangzhou municipal government recently disclosed it will inject RMB 2 billion in SPB funds into its government guidance fund (GGF).
- Earlier this month, the Jiangsu provincial government also announced plans to issue RMB 9 billion in SPBs to fund its GGF.
Some context: GGFs are state-backed investment vehicles that use public capital to attract private investment in strategic sectors.
- They do not directly invest in startups, but in other VC funds as limited partners (LPs).
- With private and foreign capital retreating amid weak macroeconomic conditions, GGFs have become the largest LPs in China’s VC industry.
More context: In late June, the Beijing municipal government became the first locality to issue SPBs to fund its GGF.
- Previously, SPB proceeds could only be used to fund infrastructure projects and, from 2024, repay hidden debt.
- In late 2024, the State Council updated the rules for SPBs, allowing local governments to issue them to fund any project not on the national negative list of restricted SPB investment areas.
Get smart: SPBs are a low-cost way to capitalize VC, but fixed coupons and hard maturities sit uncomfortably with the latter's high-risk, high-reward profile.
- If exits stall and secondary/M&A markets don’t clear, coupons and principal still come due – with the shortfall landing on the government books.
Get smarter: This isn't just about securing funding for VC-backed innovation; it's also about ensuring that funding flows into the state's priorities.
- Without hard guardrails and credible central oversight, the model could easily slip from policy steering into herding – seeding overcapacity, price wars, and zombie firms in new strategic sectors.