China’s new $15bn tech fund emulates SoftBank’s Vision Fund

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China’s new $15bn tech fund emulates SoftBank’s Vision Fund


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THE story of China Merchants Group began in the 1870s. After its defeats in the Opium wars, the Qing government tried to learn from the West by adopting foreign technology and encouraging new commercial ventures, including China Merchants. The banking-to-shipping conglomerate, based in Hong Kong, has since evolved into one of China’s largest state-owned enterprises, with $1.1trn in assets.

Fittingly, its latest endeavour again involves looking westward for new technologies. On July 1st it announced that its investment arm and other China-based investors would put 40bn yuan ($6bn) into a 100bn yuan venture-capital (VC) fund, the China New Era Technology Fund.

That total pot is a nod to the much larger project that it aims to replicate: the $100bn Vision Fund, formed by Masayoshi Son, founder of SoftBank, a Japanese telecoms and internet firm, to invest in flashy startups. It borrows a little of its aura by partnering with Centricus, a British investment company that helped Mr Son raise the initial $45bn for his fund from Saudi Arabia’s crown prince, Muhammad bin Salman. For China Merchants, Centricus will raise the remaining 60bn yuan in tandem with SPF Group, an asset-management firm in Beijing, one of whose partners is the son of Larry Fink, the founder of BlackRock.

The trio’s 100bn yuan will be mainly deployed in China. They face a crowded field of competing funds, many also backed by state firms or directly by the government. China Merchants has itself set up 30-odd funds since 2015, targeting industries from robotics to semiconductors, though the China New Era one is its most ambitious. By the end of last year, ChinaVenture, a data provider, had recorded 1,166 government-led funds with 5.3trn yuan in targeted capital, up from 214 funds in 2013.

Tech funds tied to municipal governments have also recently set up abroad: Beijing’s Danhua Capital and Hangzhou’s HEDA Investment are both in Silicon Valley. Forays like these increasingly vex trade hawks in America, who fear that China will filch its cutting-edge technology. Investments like those targeted by the China New Era fund are bound to get even more attention, says Josh Lerner of Harvard Business School.

Skittishness abroad is not the only obstacle to success. A recent report by Bank of China, a commercial lender, warned of “scattered funds and duplicated targets” among the new state-led ones, and said they were too often run by bureaucrats. Government-backed funds do not chase the best returns. The strategic interests that govern them are the chief reason why they worry Western governments—and perhaps also why many of them peter out.



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