Chengdu’s appeal as gateway city wins favour among private equity, angel investors and boutique funds
Chengdu is seeking to become a financial industry hub in western China, leveraging its geographic location and ties to private equity, according to a top financial official of the city.
The megacity of 15 million has a vibrant financial service industry that’s home to 74 banks, 83 insurers, 248 securities and futures firms. And while the size of the financial services industry, estimated at 125 billion yuan, pales in comparison to Beijing and Shanghai, Chengdu ranks well ahead of other second-tier cities.
As central bankers and finance minister of G20 nations, along with heads of multilateral financial organisations converged in Chengdu over the weekend, officials sought to highlight the city’s success in attracting private equity firms.
Yinke Venture Capital itself is a witness to the growth of Chengdu’s venture capital and private equity industry. Founded in 2009 by the Chengdu government and China Development Bank with a 1.5 billion yuan in registered capital, the entity teamed up with other fund management firms to launch 18 funds. As of April the entity had combined assets under management of 6 billion yuan.
Wu Zhong, general manager of Yinke Venture Capital said previous regulations would have required a proportion of funds be channelled into local companies, however regulators appear to have withdrawn the requirement.
He added that the “non-market-oriented” rule was counter productive.
“If the project is really good, general partners certainly would invest. If not, how can you demand them to invest?” Wu said, adding recent covenants that Yinke signed with funds don’t contain local investment ratio requirements.
“We are bullish on Chengdu’s economy, and there are enough promising startups. The question is whether they can effectively spot them, this is why we require them to operate locally,” Wu said.
Li Nong knows this too well. The general manager of Chengdu Detong-Yinke Capital Fund, a fund launched by Yinke and Shanghai-based Detong Capital, has overseen the fund as it appreciated 50 per cent since its founding in 2010.
Li said his fund was bullish about opportunities in Chengdu, particularly in defense, high-end manufacturing and agricultural technology.
The fund has invested in Huaqi Houpu Holdings, a leading natural gas station equipment provider, and Haichuan Shiye, an aircraft engine parts provider.
“I’m committed to spot ‘original’ unicorn companies. If the company is in Beijing and Shanghai, it would immediately be pursued by numerous funds, but here we get a unique opportunity,” he said.
A local investment banker, who requested anonymity, said Chengdu should foster its homegrown institutions. He said the city has no problem in attracting national financial giants because of its role as a gateway to huge markets in western China.
The recently launched New Hope Bank, headquartered in Chengdu, was founded by New Hope Group, Xiaomi Corp, and a local retailer to serve small businesses.
By the end of 2015, there were 381 angel investors, and venture capital and private equity funds in Chengdu registered under the official Asset Management Association of China.
The recently concluded Chengdu Global Innovation and Entrepreneurship Fair attracted top venture capitalists and private equity representatives from around the country.
This is another reason why Chengdu wants to fashion itself as a centre for private equity, according to Fu Jianfeng, assistant chief of the city’s Financial Work Office.
“After the global financial crisis there is a reflection on previous thinking that the larger the financial service sector is, the more institutions a city houses, the better. Instead, the size of the financial sector should match its economic size,” Fu said.
Chengdu is one of 10 mainland Chinese cities whose annual economic output has surpassed 1 trillion yuan. The city is a service hub for Sichuan province and the vast hinterland of Tibet, Guizhou and Yunnan.
