China sets up $21 billion fund to support manufacturing tech

China has set up a $21 billion state-backed fund to boost its manufacturing industry, according to a filing by one of the fund’s investors, amid a marked slowdown brought in part by a year-long trade war with the US.

Why it matters: Funded by the country’s finance ministry and several state-owned enterprises, the government-led fund together with a similar $29 billion chip-focused fund set up last month signals Beijing’s determination to mobilize support from its public sector for industries it wants to lead.

• The new fund will invest in companies working on areas including new materials, next-generation information technology, and electrical equipment—all included in the 10 priority sectors highlighted by Made in China 2025, a government-led industrial initiative at the center of the US-China trade dispute.
• The chip fund, founded in 2014, was set up to invest in the country’s integrated circuit industry, another priority sector identified in the Made in China 2015 program.

Details: The National Manufacturing Transformation and Upgrading Fund (our translation) was set up on Monday, and raised RMB 147.2 billion (around $20.9 billion) from the Ministry of Finance, local government-supported funds, and state-owned firms such as China National Tobacco, according to a filing (in Chinese) by state-owned CRRC Corp, the largest rolling stock manufacturer in the world.

• The fund is financed by 20 stockholders, with the Ministry of Finance holding a 15.3% stake as the biggest shareholder, according to corporate intelligence information platform Tianyancha (in Chinese).
• The chairman of the fund is Wang Zhanpu, who chaired the integrated circuit fund from 2014 to 2018.
• State-backed funds targeting specific sectors are important because they are seen by the market as a vote of confidence, and thus help lure private capital to invest in those sectors, Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology, told TechNode on Thursday.

“The manufacturing fund will probably give priority to listed companies, thus encouraging more private capital to participate, and maximizing its goal to upgrade the manufacturing industry” (our translation).

—Dong Dengxin

Context: China’s manufacturing sector, the main engine of the country’s economy, grew at an annual rate of 4.7% in October, down from 5.8% in the previous month, in a slowdown that has lasted for six consecutive months, according to data from the National Bureau of Statistics.

• Chinese officials were set to discuss a revamped industrial policy to supplant Made in China 2025 after it met with criticism from the US for heavy reliance on government subsidies and forced technology transfers from Western companies, according to the Wall Street Journal.
• The revamped plan includes encouraging foreign capital to invest in China and giving foreign firms more access to its markets.