China says ‘patient capital’ a virtue in government investment funds
Beijing’s government investment funds have been encouraged to set higher risk thresholds, particularly in tech research allocations
China has called on government investment funds to better track investment performance and tolerate risk – behaviour that prioritises long-term outcomes – to foster a financial environment that encourages innovation while accepting the possibility of failure.
“Government investment funds should act as patient capital, playing a cross-cycle and countercyclical role,” said the General Office of the State Council on Tuesday in a release of the country’s first national-level guidelines to promote the funds’ development.
State funds should be focused on “major strategies, key areas and weak links where the market falls short” to “attract and leverage” private capital into supporting a “modern industrial system,” the 25-point list of guidelines said.
Long-term sources of capital like the national social security and insurance funds, the document added, should be steered towards fostering patient capital, with follow-up investments in areas requiring long-term planning to ensure continuity.
Government investment funds are designed to guide private capital into supporting industrial policy goals through market-based methods like equity investments.