Government investment funds—including those led by fiscal allocations or state-owned enterprises—play a pivotal role in driving social investment, fostering new quality productive forces, and accelerating the modernization of China’s industrial system. Drawing lessons from foreign sovereign wealth funds (SWFs) could enhance policy frameworks and operational efficiency for these funds. The recent Third Plenary Session of the 20th CPC Central Committee emphasized the need to regulate and encourage angel investments, venture capital, and private equity while optimizing the role of government funds to cultivate “patient capital.” In line with this, Shanghai launched three 100-billion-yuan mother funds in July 2024 targeting integrated circuits, biomedicine, and artificial intelligence.
These funds, operating under principles of “government guidance, market-driven management, and professional oversight,” aim to bolster early-stage investments, hard-tech innovation, and industrial chain integration through sub-funds, direct investments, and ecosystem development.
Global Sovereign Wealth Funds: A 13.7TrillionBenchmarkSovereignwealthfunds,typicallyfundedbyresourcerevenuesorfiscalsurpluses,managenationalwealththroughdiversifiedportfolios.TheNorwegianGovernmentPensionFund,establishedin1990,pioneeredthismodel.By2024,over100SWFsworldwidemanaged13.7 trillion in assets—equivalent to the combined GDP of Germany, Japan, and India—with the top 10 funds controlling 70% of this sum. These funds prioritize dynamic asset allocation, with recent trends favoring AI, renewables, and biotech. In 2024 alone, SWFs channeled $27.7 billion into AI and digital infrastructure, while 85% of fund managers flagged AI as the dominant theme for 2025. ESG investments also gained traction, with Norway’s fund pledging heavier commitments to green energy. Though China’s government funds differ in focus—prioritizing industrial leadership over global capital gains—their shared state-backed nature and fund-based structures make SWF strategies highly relevant.
Lessons from Norway and Abu Dhabi: Benchmarks and Manager Selection
A critical takeaway is the establishment of clear investment benchmarks. Norway’s fund adheres to a long-term strategic allocation, with equity (71.4% of assets) and bond indices weighted by global market caps and GDP. Annual adjustments are minor, ensuring stability. Another key practice is rigorous manager selection. The Abu Dhabi Investment Authority (ADIA) employs a four-step “4P” framework—evaluating philosophy, process, people, and performance—to appoint external managers. This includes longlisting candidates, shortlisting via due diligence, and committee approvals. China could adopt similar methods to elevate its fund management standards, emphasizing market-driven selection and incentives like co-investment and profit-sharing schemes.
Portfolio Diversification: Temasek’s Three-Engine Model
Singapore’s Temasek offers a blueprint for portfolio construction. Its assets are split into resilient holdings (86% of the portfolio, targeting stable returns), partnerships (10% to scale capital), and developmental bets (4% in emerging tech like deep-tech and sustainable energy). This balance ensures both stability and growth. For China, allocating 80% of funds to strategic sectors (e.g., AI, quantum tech), 10% to intergovernmental partnerships, and 10% to frontier innovations could mirror Temasek’s success. Such a structure aligns with Beijing’s goals to nurture “long-term capital” while mitigating risks.
Risk Management: Singapore’s “Veto Principle”
Risk control is paramount. Singapore’s GIC mandates a “risk veto” for all investments, requiring pre-decision assessments and multi-layered oversight by specialized committees. China’s funds could institutionalize similar protocols, embedding risk thresholds at every tier—from project evaluation to post-investment monitoring. Chengdu High-tech Zone’s 30% loss tolerance for early-stage policy funds exemplifies adaptive risk frameworks, addressing state capital’s risk aversion without compromising oversight.
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