Special financial platform to support SMEs

Move will help restore market, investor confidence and reduce COVID-19 epidemic impact on enterprises, say experts

China SME Development Fund Co Ltd was recently set up in Shanghai, with 15 national ministries, State-owned business giants and leading companies in various fields holding stakes.

With a total registered capital of 35.75 billion yuan ($5.1 billion) for the company, China's Ministry of Finance, for the first time, directly serves as an LP, or limited partner, with a 42.66 percent stake worth 15.25 billion yuan.

China Tobacco, State-owned investment firm Guosheng Group, China Life Insurance, People's Insurance Company of China, Minsheng Royal Asset Management and Shanghai ICY Capital are also among the investors.

The opening of the company marked the official operation of the National SME Development Fund, the country's special financial platform to support small and medium-sized enterprises. It also marked the birth of one of China's largest fund-of-funds this year.

A fund-of-funds is an investment strategy that holds a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities.

Experts and industry insiders said that the move will restore market and investor confidence and help SMEs resume production and withstand difficulties due to the COVID-19 epidemic, and in the long term, promote sustainable growth of SMEs in key sectors.

"The establishment of the fund is part of the country's efforts to promote innovation and transformation of SMEs as well as the nation's high-quality economic development," said Wang Jiangping, vice-minister from the Ministry of Industry and Information Technology－the operator of the fund.

"The fund will fully leverage the multiplier effect of central fiscal funds to play an important role in cultivating new business formats, new models, new growth and new momentum," Wang said.

The China SME Development Fund Co Ltd said the size of the fund is also expected to further expand to 100 billion yuan through setting up several sub-funds in partnership with private capital firms in the country.

"The long-term development of technological innovation and mass entrepreneurial activities is inseparable from the support of early-stage venture capital and private equity capital firms," said Sheng Xitai, founder and chairman of Hongtai Aplus, a full-cycle investment firm with notable investments in over 50 technology firms.

Sheng said that as technological innovation is centered around large-scale investment, long cycles and high risk, it is difficult to rely solely on the development and cultivation of the industry's own operating income.

"Private equity investment and venture capital funds can connect money with technological innovation companies in a more effective and targeted way and become their important capital suppliers," Sheng added.

China set up the National SME Development Fund in September 2015 to support growing SMEs in the seed and early stages. With the first batch of capital hitting 60 billion yuan, the fund called for the joint participation of private and State-owned enterprises, financial institutions, as well as local governments.

After that, the fund has successively launched four limited partnership sub-funds, including Shenzhen Guozhong Venture Capital Management Co Ltd, Jiangsu province-based Addor Capital, Oriental Fortune Capital and THG Ventures－a venture capital firm backed by Tsinghua Holdings.

So far, the fund has invested in more than 100 start-ups in a consortium of emerging industries, which include online taxation service platform Huisuanzhang, business data solution firm Tianyancha, and e-signature software provider Esign.

"The National SME Development Fund has adopted an innovative mode that interconnects both parent fund and sub-fund. It not only exerts the synergistic linkage effect between the two kinds of funds but can also attract the participation of diversified social capital to maximize the effect," said You Jinbai, president and co-founder of Addor Capital.

You noted that the fund will play a critical role in helping SMEs to endure the impact brought by COVID-19. Due to the unexpected outbreak, many SMEs are finding it harder to raise funds and resume normal operations.

Wang Xiaolu, with the National Economic Research Institute, said: "SMEs are the main driving force of the country's productivity and the main stabilizer for employment and the industrial chain. Supporting SMEs is crucial in reducing vulnerability and ensuring a steady economic recovery in the coming months."