The moment of waking up
These counties, large and small, hope to replicate the “Hefei model” and make a comeback to become the “king of venture capital.” But a heartbreaking fact is that the vast majority of counties do not have such resources.
Written by | Xiong Zhi
The fund craze in small counties has been put on the brakes by a document from the State Council.
Not long ago, the “Guiding Opinions on Strengthening Supervision, Preventing Risks, and Promoting the High-Quality Development of Private Investment Funds” were released, which clearly require that “counties should not establish government investment funds in principle.”
Under the demonstration effect of the “Hefei model,” government investment funds have been used to drive investment attraction and promote industrial development, which has become a popular practice in various regions in recent years.
Why did the central government suddenly intervene to stop it this time?
This is not only to prevent financial risks, but also because the fund attraction craze sweeping through counties has become a political achievement project in some areas, deviating from the original intention of industrial development.
01
The issuance of the “Opinions” is not the first time that policies have cooled down the fund craze in counties.
The “Guiding Opinions on Promoting the High-Quality Development of Government Investment Funds” issued in January 2025 mentioned that “county-level governments should strictly control the establishment of new funds, and counties with good financial strength and resource endowments that need to establish funds should report to the higher-level government for approval.”
In terms of policy, last year it was “strictly controlled,” leaving a loophole, but this year it has been upgraded to “in principle not to establish new ones.” The change of just a few words signifies that supervision has become comprehensively stricter, basically closing the window for new investment funds in counties.
This drastic adjustment in policy scale is undoubtedly like pouring a basin of cold water on the rampant fund craze in counties.
As we know, in recent years, the “Hefei model” has become popular nationwide. Hefei’s state-owned capital, through industrial guidance funds, has precisely bet on companies like BOE, NIO, and Changxin Storage, not only reaping high capital returns but also driving the high-speed growth of industries such as new displays, new energy vehicles, and storage chips, becoming a model for learning across the country.
As a result, Hefei’s “fund + project” investment experience has also quickly become popular.
▲ Hefei National High-tech Industrial Development Zone (Photo/图虫创意)
In the past, local governments attracted investment by competing on land and tax incentives. Now, in some areas, it has become a competition for “equity finance” – government investment funds contribute capital, attract enterprises to settle down, and then set a certain return ratio, requiring the invested enterprises to build factories locally to drive tax revenue and employment.
According to Wind data, as of the end of 2025, the number of prefecture- and county-level funds accounted for 44% of the total number of government funds nationwide. In other words, nearly half of government investment funds were located in the most grassroots county areas.
Some small counties, with tight finances and no corresponding industrial support, blindly followed suit by establishing government investment funds under the mentality of “if others have it, I must have it.”
A report by the “Economic Observer” mentioned that a county in Anhui with fiscal revenue of less than 4 billion yuan “had one state-owned enterprise platform establish 15 private equity funds.”
Once government investment funds become tools for decorating political achievements and deviate from their original purpose of guiding industrial development, this widespread venture capital competition will be completely distorted.
02
These counties, large and small, hope to replicate the “Hefei model” and make a comeback to become the “king of venture capital.” But a heartbreaking fact is that the vast majority of counties do not have such resources.
No matter how professional and complex the so-called government investment funds are, their core is always simple: invest money in industrial projects.
This will lead to two problems. First, where does the money come from; second, are the projects feasible?
The success of the “Hefei model,” setting aside other factors, is based on the fundamental condition that Hefei, as the capital of Anhui Province, has a sufficiently rich fiscal foundation and a large margin for error, allowing it to withstand investment cycles with no returns for several years.
However, many county areas rely on transfer payments for their finances. Under the condition of insufficient income, they still have to allocate funds to set up funds. On the one hand, they have to bear investment risks; on the other hand, the small scale of the funds cannot attract high-quality projects and cannot achieve industrial guidance effects.
A bigger shortcoming is industrial support.
Hefei’s state-owned capital engaged in industrial guidance funds based on its existing industrial ecosystem. For example, investing in BOE was because BOE’s display panels were closely linked to the local home appliance industry, forming an upstream and downstream linkage effect.
However, in many county areas, there is no decent industrial ecosystem. Even if enterprises are “bought” to settle down through preferential conditions, it is difficult for them to truly stay without upstream and downstream support.
The final result may be that the money is invested, but the industry does not take root, and the investment is wasted.
Photo/图虫创意
Realistically speaking, in some grassroots areas, let alone whether there are sufficient funds, there may not even be a few professional talents who understand fund operations. Under these circumstances, blindly following suit to establish government investment funds and expecting to leverage a mature industrial ecosystem is simply wishful thinking.
Therefore, the truth is that some county government investment funds are “the drunkard’s purpose is not to drink.” Investment attraction is just a facade; the deeper motivation may be disguised financing and debt.
The “Opinions” specifically mention that “some private equity funds have become tools for illegal crimes, new corruption, and hidden corruption,” a very severe characterization.
It can also be seen from this that government investment funds have deviated from their intended track to a shocking extent.
03
Behind the policy’s sudden braking, the county economy itself is undergoing a profound change – a large number of county areas are irreversibly declining and shrinking.
The previous seventh national census data shows that among the more than 2,700 counties and districts with publicly released data, about 1,480 counties and districts experienced population decline between 2010 and 2020, of which nearly 1,200 were counties and county-level cities.
In other words, more than half of the counties nationwide are experiencing population outflow, with young people flocking to developed coastal areas and provincial capitals.
Photo/图虫创意
Therefore, the real problems facing many counties today are not a lack of funds, but industrial hollowing out, population outflow, fiscal contraction, and increasing pressure on public service provision.
For such population-shrinking counties, instead of pinning their hopes on venture capital, or even blindly expanding production and building parks to attract enterprises, it is better to return to pragmatism and rationality, and use limited fiscal funds for genuinely needed livelihood security.
Improving infrastructure, enhancing medical and educational standards, and optimizing the business environment are, on this basis, cutting unnecessary expenses. These seemingly basic investments are the long-term strategies for retaining population and enterprises.
The “fund dream” of county magistrates has come to the moment of waking up, and this is certainly not a bad thing.
After all, not every county can become the next Hefei, nor is every place suitable for relying on the risk operations of government investment funds to change its destiny.
The development of the county economy must ultimately return to its own fundamentals. Only by facing the reality of population and industry and finding a path of distinctive development can the pace of county contraction truly slow down a bit.
*Main image from CFP
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