Local Government-Owned Assets Enter the VC Arena
Recently, Yulin Coal Fund, as the fund manager, has jointly established the Yulin Emerging Industry Investment Fund with Yulin Energy Group and Yulin Financial Investment, with a fund size of 1 billion yuan (actually paid-in 1 billion yuan). The fund focuses on investing in new materials, new energy, fine chemicals, aerospace, equipment manufacturing, digital economy, and other strategic emerging industries, with an emphasis on supporting projects related to filling industrial gaps, promoting industrial transformation, and driving industrial upgrading in Yulin.
The Yulin Emerging Industry Investment Fund is the first main fund in Yulin to promote the development of emerging industries. Centered on the transformation and development of energy cities, it uses industry as the foundation, talent as the source, and funds as the link. By "capital investment attraction," it cultivates emerging industries and helps Yulin's economy achieve high-quality development.
State-owned venture capital (VC) often carries the task of balancing investment and investment attraction. Generally speaking, "fund investment attraction" is the most mainstream method for local governments to attract investment and introduce industries. After practicing this model for a period, many local governments have found that it is inefficient and the results are not obvious. Especially for places with scarce industrial resources, where venture capital institutions struggle to find good projects to reinvest, the demand for state-owned capital to directly invest is greater.
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Yulin Coal Fund was established in March 2018 and is a state-owned equity investment platform in Yulin City, Shaanxi Province. It was jointly initiated by Yulin Financial Investment, Yulin Energy Group, Shaanxi Coal Group, Shaanxi Investment Group, and other industrial platforms. It has branches in Shenzhen and Xi'an, with a management scale of over 6 billion. After five years of exploration, combined with Yulin's industrial advantages, Yulin Coal Fund has explored its unique approach, "Pre-investment attraction," and has seen results.
The general manager of Yulin Coal Fund said, "Currently, more than 70% of the invested companies have actually landed." By "front-running" the investment timing and creatively proposing the "Five Strong Standards" for project screening, namely strong industry relevance, strong energy demand, strong production load, strong intention to expand production, and strong financial support, it ensures the expected landing of invested projects.
For example, in Fengguang New Materials, in May 2020, Yulin Coal Fund increased its investment by 50 million yuan. The company established a holding subsidiary, Aikelaite, in Yulin in 2018 to deeply develop the polyolefin additive industry. However, since its establishment, it has not officially carried out actual business activities until the "entry" of the Yulin Fund, and the project was completed in January 2023.
At present, Aikelite has obtained approval for trial production from the Yulin Municipal Government. The alkylphenol unit, the trimethylaluminum unit, and the olefin catalyst unit have already been in normal production. Just this month, the company's new product, trimethylaluminum, won the bid for the framework agreement procurement of trimethylaluminum by Ningxia Coal Industry's Olefin Branch 1 and Branch 2 with a bid amount of 14.73 million yuan.
For another example, Sanjing Technology, which received strategic investment in 2020, established a wholly-owned subsidiary, Beichen Shenyuan New Materials, in Yulin at the end of 2020. It also plans to invest 360 million yuan to construct an annual production capacity of 10,000 tons of polyimide monomers, polymers, and intermediates. The latter is expected to contribute an annual tax payment of 40 million yuan and create approximately 80 job opportunities. The official website of the Provincial Development and Reform Commission shows that, in principle, it has already given its consent to the energy conservation report of this project.
In addition, there are projects such as Wujiang Chemical and Zhongde Conveyance that have successively completed the closed-loop operation of "Pre-investment attraction" and have landed projects in Yulin under the "traction" of Yulin Coal Fund.
"The local demand for introducing projects is that the project must have a relationship with local enterprises and the upstream and downstream of the industry chain. However, market-oriented investment institutions may not be familiar with the local industry situation, nor are they familiar with the local investment attraction process and details, as well as the relevant government departments involved. Therefore, the challenge of attracting investment for local areas is very large." "Enterprise investment attraction and landing is a systematic project. Only by deeply cultivating the local area and maintaining local resources for a long time can it be completed more efficiently. Therefore, many places choose to do it themselves." said.
The requirement for the safety of state-owned capital is higher than the requirement for investment returns, which just fits with local investment attraction. The first is investment attraction, followed by the safety of funds, and finally, obtaining higher investment returns.
The difference between local investment attraction and subsidiary fund investment attraction is that there is no situation of not relocating and not paying. Relevant persons said, "We need to take into account the progress of investment attraction and fund investment. Some enterprises, especially chemical projects, have a long development cycle and need 1-2 years to develop locally. However, based on the enterprise's relevance to the local industry, resource demand matching, and the founder's intention to expand production, we should first invest and lay out the project."
Under the background of economic downturn, it is more and more difficult for private venture capital institutions to raise funds, and a large number of talents have begun to shift from market-oriented institutions to state-owned institutions, providing a talent accumulation for state-owned institutions to enter the market. At the same time, after years of development, local guiding funds have a relatively complete system for investment judgment and know better how to coordinate local industries and upstream and downstream resources.