Shenzhen - the nation's seat of technological innovation - prides itself on an orderly investment strategy of exercising meticulous risk control over companies to help them overcome financial hurdles in the high-stakes game of business success.

Capitalizing on the technology wave, the city's ingrained adventurous gene has been instrumental in pushing national investments in smaller, yet promising ventures for technological self-reliance.

Amid weak investor confidence and cloudy economic prospects, Shenzhen has taken the initiative to share the risks faced by enterprises in high-potential tech projects, nurturing them in a bid to help them succeed in what is seen as the defining moment of their growth.

According to Shenzhen-based think tank the China Development Institute (CDI), the road is arduous for emerging Chinese enterprises - taking as long as 14 years for them to move from inception to public listing, with many falling by the wayside.

In March, the Shenzhen authorities rolled out a series of policies to promote the "bold capital" concept, using government funds to increase investment in early-stage tech projects in industries that are strategically important to the country's economic development, or that represent the future development path for global science and innovation.

The venture capital sector itself had been putting greater emphasis on cultivating "patient capital" that encourages a longer exit timeline for investors. In contrast, "bold capital" aims to stimulate investments at an early stage.

Spearheading the concept, Shenzhen's southwestern Nanshan district - home to the Shenzhen National High-Tech Zone and an axis of technological innovation - initiated a 500-million-yuan ($69.3 million) direct investment fund and raised the ceiling covering losses allowed for individual projects to 100 percent from the typical 50 to 70 percent for similar investments.

Investment drive

Shenzhen also wants to attract capital from overseas markets, financial entities and leading enterprises to embolden start-ups. It aims to create a fully fledged ecosystem for innovation and entrepreneurship by next year with a trillion-yuan industrial fund cluster and more than 10,000 equity investment and venture capital funds, along with key investment hubs like Xiangmi Lake, Shenzhen Bay, Qianhai Bay and Guangming Science City.

As the cradle of China's venture capital investments two decades ago, the southern boomtown may not top the nation in terms of government funding, but it has backed a significant number of publicly-listed companies.

In the past decade, the Shenzhen municipal government's 150-billion-yuan guided fund has aided over 8,000 industrial projects, supporting nearly 600 companies that have gone public, including DJI Innovations, Mindray Medical, BGI Genomics and BYD Semiconductor.

Akin to many venture capital funds, government funding, traditionally, goes to relatively mature projects for quick and predictable returns. But, the current business environment puts greater responsibility on the authorities.

As venture capital pulls out of China in the face of growing Sino-US tensions, and with tech firms seeking significant funding to join the technological race, local governments across the country have stepped up investments. Since 2023, provinces like Hunan, Jiangxi, Hubei and Zhejiang, as well as megacities Shanghai, Guangzhou and Chongqing, have started government-guided funds ranging from 100 billion to 300 billion yuan to bolster technology and innovation.

According to the venture capital database ITjuzi, direct investments by government funds in the market have risen from 4.24 percent in 2015 to 25.4 percent in 2024, making them a crucial pillar of the industry.

"The national strategy of technological independence has pushed tech companies to center stage," says Yu Lingqu, deputy director of the department of finance industries at CDI.
Industry giant OpenAI - a San Francisco-based AI research organization - says it plans to raise $40 billion in its latest funding exercise - the biggest amount sought by a private tech enterprise in a single funding round.

The quest for game-changing projects among investors has become so intense that any hesitation could result in letting an opportunity slip.

In Yu's view, early-stage projects and large-scale industrial investment projects that social capital tends to avoid because of high risks should be the primary focus for government funds.

Pointing to the significance of policy support in unlocking the potential of government funding, he hopes it can play a vital role in the investment market, sharing risk with early-stage enterprises and acting as a channel for attracting social capital.

Yu Haojun, chief executive officer of Shenzhen Nanshan Strategic Emerging Industries Investment Co, agrees that the government's latest investment policies are crucial for maintaining Shenzhen's technological competitiveness. Founded by Nanshan district to support advantageous industries, the company manages the area's newly-launched direct investment fund to back innovation.

Yu Haojun says Shenzhen's technological edge is not as pronounced as in the past, compared to other mainland cities. "The pace of technological development has been so fast, and for tech companies, falling behind by even a little can result in significant setbacks," Yu adds.

The Yangtze River Delta, which covers Shanghai and the provinces of Jiangsu and Zhejiang, is home to one-third of the country's biopharmaceutical industrial parks. Hefei, Anhui province's capital city, ranked second nationwide last year in the production of new energy vehicles, trailing only Shenzhen, and there is significant rivalry from AI enterprises in Zhejiang's provincial capital, Hangzhou, led by DeepSeek.

Nanshan, with a per capita gross domestic product several times the national average, aims to become the country's third urban district to achieve a trillion-yuan GDP this year after Shanghai's Pudong financial district and Beijing's tech and academic hub, Haidian.

To attain its goal, the district is relying heavily on prioritized industries and businesses to generate new growth drivers. Its direct investment fund will be used to help strategic industries and future industries such as robotics, in which it has built a strong ecosystem, and quantum mechanics - a cutting-edge technology with tremendous market potential.

The fund has since attracted applications from over 100 companies. Established in 2022, Nanshan SEI Investment alone has invested in more than 40 projects to date, with 60 percent of its investments made prior to the Series A stage.

Among the projects is Lanxin Computing, a high-performance chip design company. Backed by the founding team from internet giant Bytedance and Nanshan's financial support, the company, launched two years ago, has seen rapid development. Its first RISC-V chip product is expected to attain small-scale production early next year.

Cui Wenxue, who is in charge of Lanxin Computing's investment and financing, highlights the value of long-term financial aid for the chip industry - the core component driving most advanced technologies like AI.

He says although entry-level chips are widely adopted, technological breakthroughs in high-end chips still take about five to 10 years. Given the intensifying technology sanctions by the current US administration, support from local governments in the domestic market is particularly crucial.

Driven by Shenzhen's latest investment policies and the success of Chinese AI products on the global tech stage, a boom has been seen in the domestic investment market.

Lanxin Computing hosted representatives of various organizations last month, in stark contrast to last year's exceptionally gloomy atmosphere caused by tightening policies on initial public offerings that resulted in the loss of many leading enterprises.

Yu Haojun says there has been a growing number of institutions wanting to establish joint funds with Nanshan in recent months. In his view, the Nanshan fund's 100-percent loss acceptance ceiling has sent a clear message to boldly support innovation, further alleviating their concerns despite the existence of a liability waiver mechanism for due diligence.

To prevent abuse of the fund, Nanshan SEI Investment applies a robust supervision mechanism, with investment experts, scholars and government officials in charge of industrial developments collectively acting as gatekeepers.

Advocating the model adopted by Temasek Holdings - Singapore's state-owned sovereign wealth fund - Yu Lingqu suggests improving the assessment mechanism for government capital to encourage innovation. This could include assessing projects over longer periods rather than focusing on individual investments, and introducing diverse evaluating systems on how they can affect the development of industries.

Diversifying funding streams

To expand the funding pool for innovative technology, the Shenzhen authorities intend to leverage the city's close links with Hong Kong to lure more investments from the financial hub and global investors.

With substantial financial resources, Hong Kong has seen new developments in its investment sector, including the groundbreaking establishment of the Hong Kong Investment Corp. The corporation, set up in 2022 and wholly-owned by the Hong Kong Special Administrative Region government, manages funds totaling HK$62 billion ($7.9 billion), including one designated for investing in the Guangdong-Hong Kong-Macao Greater Bay Area. In addition, a growing number of funds backed by the SAR's world-renowned universities have emerged.

Shenzhen also aims to harness its two cooperation zones with Hong Kong at Qianhai and Hetao, as well as innovative financing mechanisms (like the Qualified Foreign Limited Partnership program) that help overseas investors participate in domestic projects, to attract funds from abroad to the mainland's thriving tech
sector.

As a key player in Shenzhen's government-backed funds, Nanshan SEI Investment aims to start joint projects with Hong Kong investors through the Qianhai and Hetao cooperation platforms to strengthen Nanshan's supply chains. It will also recruit more Hong Kong professionals in utilizing international resources, and open a branch in the SAR to promote the integration of overseas and domestic projects.

From the Greater Bay Area's perspective, Yu Lingqu suggests that the 11-city cluster integrate their strengths in investment strategies. Hong Kong, for instance, can focus on attracting global innovation resources, and Shenzhen should prioritize frontier technologies to break the international barrier, while Guangzhou and Dongguan can strengthen their manufacturing edges.

To create a robust investment environment, the experts are also placing high hopes on the potential of industrial funds and financial organizations.

Corporate venture capital, which involves company funds investing in start-ups and is being led by industry giants, is exerting increasingly significant influence on the investment scene.

In the United States, although corporate venture capital accounts for less than 30 percent of venture investments by deal counts, it commands more than 60 percent of the total investments made by deal value. The largest investment of $40 million in OpenAI is led by Japanese telecommunications and internet giant SoftBank Group, vastly surpassing contributions from Silicon Valley's renowned venture capital leader, Sequoia Capital.

Shenzhen's industrial funds are also active, with significant equity investments from Tencent, Huawei and BYD, that can effectively complement traditional venture capital funds.

However, Cui warns that tech titans should avoid unhealthy competition with smaller players over talent and resources when making investments, and instead jointly create a favorable environment for budding enterprises to stay and thrive.

Other investment channels like financial assets investment corporations, insurance companies and cooperative stock companies have abundant idle capital. Established to manage the collective assets of urban villages, Shenzhen's cooperative stock companies held staggering bank deposits of up to 80 billion yuan in 2021.

To transform these resources into a catalyst for innovation, Yu Lingqu wants the authorities to adopt a sustainable approach to their utilization rather than making short-term investments for quick returns.

As the future of the venture capital industry is closely tied to the nation's development, industry gurus are hoping that government funding will carve out a broader arena that will allow other investors to flourish.

Contact the writer at bingcun@chinadailyhk.com