Developing venture capital is an important measure to promote a virtuous cycle among technology, industry, and finance. This year, multiple regions have explored mechanisms for error tolerance, encouraging state-owned capital to actively participate in venture investment activities. The "Guangdong Province Science and Technology Innovation Regulations," which came into effect on October 1, clearly proposes that provincial and municipal governments above the prefecture level should establish and improve performance assessment, incentive constraints, and error tolerance mechanisms for state-owned venture capital institutions, and promote these institutions to increase support for technology-based enterprises in their early stages.
Industry insiders analyze that to truly "unshackle" state-owned capital through the design of error tolerance mechanisms, allowing it to participate in the market in a manner consistent with the objective laws of venture investment, and to achieve a virtuous cycle of investment and innovation.
In recent years, the activity of state-owned capital in the venture capital market has been continuously increasing. Central enterprises have orderly carried out related fund investment businesses, making full use of the advantages and characteristics of fund capital aggregation, flexible decision-making, and risk dispersion, and actively promoting high-quality development of the real economy through effective investment. Wang Hailin, director of the Capital Operation and Revenue Management Bureau of the State-owned Assets Supervision and Administration Commission (SASAC), stated that SASAC has always attached great importance to and actively promoted the development of venture investment, and has introduced a series of policy documents in recent years, proposing differentiated support policies for venture investment funds.
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Data shows that state-owned capital LPs (Limited Partners) remain the main contributors to the current venture capital market. Data indicates that in the first half of 2024, the national LP subscribed capital amount was about 506.9 billion yuan, of which government funds subscribed to 272.7 billion yuan, accounting for 53.8%, ranking first. The proportion of capital contributions from government institutions and state-owned controlled institutions LPs was 71.4%, still maintaining a high level.
It is reported that in the first half of this year, there were 233 government guidance funds, with a total of 392 capital contributions, totaling 104.983 billion yuan. In terms of capital contributions, provincial guidance funds contributed the most, totaling 46.9 billion yuan, followed by county-level government guidance funds, totaling 30.2 billion yuan. In terms of single capital contributions, the highest single contribution from provincial guidance funds was 572 million yuan, and the highest single contribution from county-level guidance funds was 213 million yuan.
Among government guidance funds, the Beijing Municipal Government Investment Guidance Fund (Limited Partnership) contributed the most in the first half of this year, entrusting 29.7 billion yuan to Beijing State-owned Capital Management, investing in 4 industrial funds managed by Beijing State-owned Capital Management, respectively, to help Beijing's artificial intelligence, information technology, medical health, and robotics industries.
Traditionally, state-owned capital emphasizes the preservation and appreciation of capital in investment, simply put, do not lose money. Therefore, state-owned capital has long had a low tolerance for mistakes, which also leads to overly cautious investment decisions when facing high-risk, high-potential projects. Moreover, the assessment mechanism for state-owned capital usually takes the preservation and appreciation of value as the main indicator, and this assessment orientation further intensifies the conservative tendency of state-owned capital in venture investment.
Industry insiders believe that since state-owned capital bears the responsibility of managing public funds, the safety requirements for it are extremely high. Faced with possible investment failures, relevant management personnel not only face the risk of economic losses but may also face administrative and legal responsibilities. The lack of an error tolerance mechanism further suppresses the enthusiasm for investment innovation.
State-owned capital has a huge role in supporting the innovation ecosystem. How to make state-owned capital more willing to invest? Tian Lihui, a professor of finance at Nankai University, said that only by establishing a sound error tolerance mechanism and creating a relatively tolerant investment environment can state-owned capital use funds more flexibly to support those technology-based enterprises in their early stages with potential.Stimulating Venture Capital Vitality
In June of this year, the General Office of the State Council issued the "Several Policy Measures for the High-Quality Development of Venture Investment" (hereinafter referred to as "Venture Capital 17 Articles"), which is another systematic policy document at the national level to promote the high-quality development of venture investment following the "Several Opinions on Promoting the Continuous and Healthy Development of Venture Investment" introduced by the State Council in 2016.
In the "Venture Capital 17 Articles," the fault tolerance and exemption mechanisms for state-owned capital are highlighted. It proposes to optimize the management of government-funded venture capital funds, reform and improve the fund assessment, fault tolerance, and exemption mechanisms, and establish a performance evaluation system. In terms of implementing and improving the management system for state-owned venture investment, it suggests establishing a management system and due diligence compliance responsibility exemption mechanism for state-owned venture investment that conforms to the characteristics and development laws of the venture investment industry, and exploring the assessment of state-owned venture investment institutions throughout the entire fund life cycle.

Tian Lihui stated that the "Venture Capital 17 Articles" established at the national level the necessity of establishing a fault tolerance and exemption mechanism, which is of great significance for improving the policy environment and management system for the entire chain of venture investment "raising, investing, managing, and exiting," supporting venture investment to grow stronger, and becoming larger.
The State Council's executive meeting held on September 18 mentioned "promoting the development of venture investment," clearly proposing to promote state-owned capital contributions to become more responsible long-term capital and patient capital, and to improve the relevant policy measures for state-owned capital contributions, assessments, fault tolerance, and exits. It also emphasized the need to consolidate the institutional foundation for the healthy development of venture investment, implement key measures of capital market reforms, improve the functions of the capital market, and further stimulate the vitality of the venture investment market. Experts have indicated that to make state-owned capital a genuine patient capital, the key is to "unshackle" state-owned venture capital institutions from top to bottom.
Lin Xipeng, a researcher at the Think Tank of China Merchants Securities Research Institute, analyzed in a research report that patient capital is a reflection of financial empowerment for new quality productivity. However, China's patient capital is still insufficient at present. Subsequent policies to strengthen patient capital can be expected from three perspectives: first, support state-owned capital to play a leading and exemplary role, establish a systematic guarantee for long-term capital support for sci-tech innovation enterprises, and create an atmosphere where state-owned capital leads and various social funds follow; second, build an evaluation system around "patience," accelerate the improvement of the state-owned capital loss tolerance and fault tolerance mechanism, strengthen the assessment of medium and long-term performance, and comprehensively and reasonably determine assessment targets from multiple aspects such as economic benefits, social benefits, risk control, and industrial support; third, optimize the capital market investment environment, remove institutional barriers that hinder the entry of medium and long-term capital, allow institutions to carry out market-based selection of the fittest, and better serve scientific and technological innovation.
Accelerating the Improvement of Mechanisms
This year, many places have significantly accelerated the improvement of fault tolerance and exemption mechanisms. In May, Dongcheng District of Beijing issued the "Dongcheng District Government Investment Guidance Fund Management Method (2024 Draft for Comments)," which added specific circumstances for due diligence exemption and clarified that the guidance fund will no longer use normal investment risks as a basis for accountability. Anhui Province introduced the "Implementation Opinions on Establishing a Fault Tolerance Mechanism in the Audit of State-Owned Capital Investment in Sci-Tech Innovation Enterprises (Trial)," which focuses on the life cycle of state-owned capital investment and clarifies the three basic conditions applicable to the fault tolerance mechanism.
In July, the Guangzhou Development Zone (Huangpu District) Science and Technology Innovation Venture Investment Mother Fund issued a management method, clearly writing due diligence exemption in the management method and listing four major exemption situations. Chengdu High-Tech Zone released a full life cycle investment fund operation system, which proposed to set the tolerance scale for various investment funds, with the loss tolerance rate for policy funds such as seed, angel, venture capital, industrial investment, and merger and acquisition funds ranging from 80% to 30%, and the loss tolerance rate for market-oriented funds set at 20%.
In August, the "Guangdong Province Science and Technology Innovation Regulations" were officially announced. In addition to mentioning "establishing and improving the performance assessment, incentive restraint, and fault tolerance mechanisms for state-owned venture investment institutions," it also clearly proposed "setting different assessment indicators for the investment period and exit period of state-owned angel investment funds and venture capital funds, comprehensively evaluating the overall operation effect of the funds, and not using the preservation and appreciation of state-owned capital as the main assessment indicator." Experts have said that "preserving and appreciating state-owned capital" has always been a red line for state-owned capital. The emergence of the Guangdong Province Science and Technology Innovation Regulations has broken the traditional assessment orientation and reduced the concerns of state-owned capital in investment decision-making.In September, the People's Government of Zhengzhou issued the "Zhengzhou Angel Investment Fund Establishment Plan," which has garnered significant industry attention due to its inclusion of "due diligence exemption and error tolerance mechanism" content. Chongqing Municipality issued the "Implementation Plan for Chongqing to Implement the Policies and Measures to Promote the High-Quality Development of Venture Capital," listing "leveraging the guiding and driving role of government-funded and state-owned venture capital funds" as one of the key tasks. The State-owned Assets Supervision and Administration Commission (SASAC) of Hubei Province issued the "Hubei Province State-Owned Enterprises Error Tolerance Exemption List (2024 Edition)," which refines and specifies the circumstances for error tolerance and exemption, establishing an "1+N" error tolerance and exemption work system.
Experts have indicated that there is an urgent need to implement and improve the error tolerance mechanism as soon as possible, allowing the investment role of state-owned capital to be fully realized, thereby providing strong support for cultivating and developing new quality productive forces, achieving high-level self-reliance in science and technology, and shaping new momentum and advantages for development.
"SASAC will base its actions on its own responsibilities and positioning, strengthen communication and coordination with relevant departments, and provide greater support to central enterprise venture capital funds in terms of relaxing scale restrictions, increasing contribution ratios, focusing on overall performance and long-term return assessments, and clarifying due diligence exemption and error tolerance conditions," said Wang Hailin. SASAC will also guide central enterprises to fully utilize existing relevant policies, leverage their own advantages and conditions, and use venture capital funds to increase investment in industry-leading technology companies, technology成果转化, and small and medium-sized enterprises in the upstream and downstream of the industrial chain. Encouraging early-stage, small-scale, long-term, and hard technology investments, SASAC aims to play the role of long-term and patient capital, supporting strategic emerging industries and future industries.