Download Study on Obstacles and Solutions to China’s Low-Carbon Industrial Investment Fund

M & D FORUM
Study on Obstacles and Solutions to China’s Low-Carbon Industrial
Investment Fund
ZHANG Jing
School of Management, University of Jinan, P.R.China, 250022
[email protected]
Abstract: China's economic development is in the transformation process of reling on foreign capital to
domestic investment. In terms of China's entire investment, domestic investment is actually very rich,
but it lacks mechanisms to activate these resources together for effective configuration. The
development of low-carbon Industrial Investment Fund provides an effective win-win way which can
achieve economic transformation and upgrading environmental protection. This article analyzes the
low-carbon industrial investment fund in China and its important role in the development situation. In
the same time, it points out the obstacles that the China’s industrial investment funds face, and proposes
that removing these obstacles fundamentally requires the joint efforts of government and all.
Keywords: Low-Cabon, Industrial Investment Fund, Status Analysis, Solutions
1 Introduction
China's industrial investment fund was born in the particular situation of China's economic reform. After
more than ten years of development, China's securities investment fund has begun to take shape, but the
industrial investment fund development is still in the initial exploratory stage. As the establishment and
improvement of China's market economy and the promotion of investment and financing system reform,
there are more and more pressing needs of investment funds and other new types of industrial
investment and financing tool[1].
After Copenhagen conference, the development of low-carbon economy has been widely recognized by
governments around the world, will become the new engine of global economic recovery. Low-carbon
industrial investment fund can take full advantage of financial innovation tools to promote low
carbon-economic development. The low-carbon economy will develop fast by by the way of
capital-driven.
2 The Definition of the Concept of Low-Carbon Industrial Investment Funds and
Its Importance
State Planning Commission (now the National Development and Reform Commission) develop
formulated the "Interim Measures on Industrial Investment Fund Management". It points that the
industrial investment fund is a kind of benefit-sharing and risk-sharing collective investment system
which conducts equity investment and provises management services in unlisted enterprises. The
direction of the investment is not only in venture capital but also including pillar industries, basic
industries, and industrial restructuring and other fields of finance. The keywords of the definition such
as equity investment, unlisted companies, provide management services and collective investment
system, fully embody the characteristics of industrial investment funds. Industrial Investment Fund has
the advantages of collective investment, expert management, risk diversification, operational norms".
The low-carbon industrial investment fund comes into being under the global initiative low-carbon
economy environment. It is one kind of private equity investment fund, which specialized invests in the
low-carbon industry, carries the heavy responsibility of rapid development of low-carbon economy by
the way of capital-driven, and has vital practical significance. Under the big background of international
finance crisis, it can take full advantage of financial innovation tools to promote low carbon-economic
development. And it is an effective win-win way which can achieve economic transformation and
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upgrading environmental protection [2].
With the increasingly improved national law and government support policies have been put forward,
China's development of industrial investment funds has been basically mature. We can use the tool of
industrial investment fund to integrate money, and organize it by expert management. In this way, the
Chinese economy can be activated, so that the use of funds will be more efficient and scientific. The
development of industrial investment funds in China's economic growth and social development provide
a possible and important good way.
2.1 The development of low-carbon industrial investment funds, can help to promote the
development of new high-tech energy-oriented industries, thereby promoting the transformation
of economy development pattern and the adjustment of industrial restructuring
The net cash flow is very unstable in new-energy industrial enterprises because of the uncertainty of
new technology makes, and these enterprises require substantial capital to expand production and
organize sales in the same time, as a result, high risk is its essential character. Banks and other
traditional financing sources are widespread in resource allocation on an adverse selection problem, they
tend to invest the funds to the enterprises which are more mature development, less risk and the revenue
are more stable. On the contrary, these new-energy enterprises which most need financial support can’t
obtain loans because of higher risk. Instead, the low-carbon industrial investment fund not only provide
financial support to these enterprises while also give a more scientific management and effective
monitor to them. High-tech industries often represent a new direction for industry development and on
behalf of a new level of the science and technology. And thus can play an important role in promoting
the entire industrial restructuring.
2.2 The development of low-carbon industrial investment funds help to promote regional
economic balance and coordinate development
China is a vast land of developing countries. There is always a huge imbalance in the process of rapid
economic development, because of the terrain, environment, history, ethnic and conditions and other
reasons. Because of this imbalance in the regional economy, maks the huge gap between economies of
east and west, enormous obstacles in the markets and capital flows, more unstable factors in China’s
economic development. The development of industrial investment funds helped to facilitate the social
pool of idle funds, to carry out the professional operation by the investment institutions. Input the funds
to areas of special needs support to develop leading industries and gradually narrow the economic gap,
help to promote the economic structure rationalization and advancement, promote balanced coordinated
development of regional economic [3].
3 The Classification and Development Status of Industrial Investment Funds
3.1 According to the stage which industrial investment funds invest, it can be divided into:
3.1.1 New industries and venture capital funds. As new industries in business start-up phase, the
awareness of consumers of the products is not high, the market share is low and business risk is
relatively large. As the traditional mode of financing can not afford the high-risk business, so the new
industries has special needs of venture capital funds to support.
3.1.2 Pillar industries and pillar industries of investment funds. Pillar industries are at a mature stage,
already have a stable income and the market. But the pillar industries in developing countries strengthen
the shoulder of national competitiveness and catching up with developed countries in the task, but in
other side,capital markets in developing countries are not perfect, can not meet the pillar industry of
funds needed for development. To this end, the establishment of investment funds pillar industries is
necessary.
3.1.3 Infrastructure industries and infrastructure investment funds. As the huge amount of investment in
infrastructure industries and the investment recovery period is long and also slow recovery of its
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investment and other issues, leading to investors reluctant to intervene. Therefore the establishment of
infrastructure investment funds help offset the huge funding gap of infrastructure industries, while it can
also alleviate the problem of pressure of excessive government spending.
3.1.4 Declining industries and industrial restructuring fund. As the recession phase of declining industry,
market demand has a significant reduction. In order to survive, they must bring in external funding to
achieve transformation and product innovation. Industrial restructuring fund will not only bring a lot of
money, but also bring advanced management experience, which is conducive to declining industries to
date.
Table 1 the Comparison of Different Industrial Investment Funds
Classification
Investment fields
Risk and return characteristics
venture capital funds
New industries
High-risk, high-income
pillar industries of investment funds
Pillar industries
Risks, benefits are not determined
infrastructure investment funds
Infrastructure industries
Low-risk, stable income
industrial restructuring fund
Declining industries
Some are high-risk, high-income
3.2 The development status of China's industrial investment fund
As of the end of 2009, China has 14 industrial investment funds, including 3 for the Sino-foreign joint
industrial investment funds, 11 investment funds for the assets in the industry. At present, the existing of
China's industrial investment funds are total of 10 which are divided by three batches, respectively,
including China's first industrial investment fund - Bohai Industrial Investment Fund, the second batch
approved of Shanxi Energy Fund, the Guangdong Nuclear Power Industrial Investment Fund, Shanghai
Financial Fund, Sichuan Mianyang High-Tech Fund, New Hi-tech Industrial Investment Fund .and the
third approved of Huayu Water Industrial Investment Fund, Tianjin Ship Industrial Investment Fund,
urban infrastructure industrial investment funds, the Northeast Equipment industrial investment fund,
the total size of more than 1,400.00 billion RMB.
Time
January, 1998
May, 2003
November, 2004
August, 2005
December,2006
October 2007
July 2008
Table 2 The List of China's Industrial Investment Fund(as 2009)
The Name of the Fund
Sino-Swiss Partnership Fund
China - ASEAN SME Investment Fund
China - Belgium Direct Equity Investment Fund
China Petroleum Industrial Investment Fund
Bohai Industrial Investment Fund
Shanxi Energy Fund; Guangdong Nuclear Power Industrial Fund; Shanghai Financial Fund;
Sichuan Mianyang High-Tech Fund; New Hi-tech Industrial Investment Fund
Huayu Water Industrial Investment Fund; Tianjin Ship Industrial Investment Fund; Urban
Infrastructure Industrial Investment Fund; Northeast Equipment Industrial Investment Fund
On the whole, the development of industrial investment is in a rapid growth phase in our country. The
investment is active and it gradually shows the effect for the development of high-tech enterprises in
China. But the proportion and scale are far less than startup capital which economic development and
restructuring need. Compared with 900 billion in American it is just a drop in the bucket in investment
scope. We can see that venture capital is at the early stage of development and venture capital has a
bright future in China. So to promote the health of China's venture capital industry rapid development, it
must create more favorable for its relaxed environment for development.
4 The Development Status of Low-Carbon Industrial Investment Funds in China
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On February 2010, the yellow river delta industrial investment fund launched ceremony held. The Fund
is initiated by Zibo municipal people's government, high Qingxian people's government, Beijing
Xin-Yu-Zhong-Yuan Consulting ltd. The industry position is based on industrial chain, and financial
innovation is considered as an opportunity, the goal is to promote leading enterprises listed, and to create
yellow river delta high-green black cattle low-carbon economic zone, achieve farmers, businesses,
investors and local economic value of synergies and win-win cooperation. Investment funds sponsored
will promote the smooth realization of goals that the amount of high-green cattle’s reach to 300,000 in
three to five years.
On April 2010, the first private equity investment fund which use "low-carbon economy" as the clear
theme was born. It’s Zhejiang Nuohai low-carbon fund. The fund is prepared in just two months period,
and it raised over 220 million RMB capital. These capital was all from Zhejiang folk. The profit model
of Nuohai low-carbon fund is that: first, invest in low-carbon high growth areas of the business to get
equity, then foster the enterprise listed, and finally make profits by the way of sale shares to exit.
On June 17, 2010, "The green low-carbon house in Chengdu industrial investment fund" launched by
the domestic several major fund companies start listing preparation and it is expected to raise the total of
two-billion dollars. The fund set a precedent in the country. It will provide financing services for the
related industry chain from different directions, resolve the crisis of capital chain’s fracture, and reduce
the risk of poor-quality building products.
On June 28, 2010, Xining government, Xining national low-carbon industrial investment fund
Management Co. Ltd, Qinghai Branch of China Construction Bank signed “The Xining City’s
Low-Carbon Industrial Investment Fund Cooperation Agreement”. Smooth project in Xining City,
Education layout adjustments, comprehensive transformation of the railway station projects and The
Nanchuan comprehensive development projects etc. These were all included in the first cooperation
projects. The government’s actively guide, will create favorable environment for the development of
low-carbon industrial investment fund, conducive to foster strategic emerging industries, and promote
green development.
5 The Obstacles which China's Industrial Investment Fund Development Face
Now
5.1 In the view of the legal environment: Currently, industrial investment is still a new industry in
China, and the relevant laws and regulations to promote the development of industrial investment fund
is not perfective, this induces all kinds of Industrial Investment abnormal phenomena occur. To some
extent, it has impact on the prosperity of China's industrial investment fund market. Since 1996, the
State Planning Commission had already started to draft the "Interim Measures on Industrial Investment
Fund Management", including the drafting of the adjustment of venture capital. But for various reasons,
"Interim Measures" has yet to be introduced after several twists and turns. Industrial investment fund
involving the "Company Law", "Partnership Enterprise Law" and a number of laws and regulations, but
in the development of our country, for the operational characteristics of industrial investment funds of
above-mentioned laws and regulations when not taking into account, many provisions of the
development industry has become a obstacle to develop investment fund. In addition, in China, the
development of low-carbon industrial investment fund has just started, the laws and regulations and
supporting policies, which direct to low-carbon industrial investment funds are still blank. Low-carbon
industrial investment fund’s function of promoting low carbon economic development has not been well
play[4].
5.2 From the standpoint of financing channels: the source of U.S. venture funds, including pension
funds, private funds, foreign funds, mutual funds and other channels. At present, China's industrial
investment funds, mainly composed by government funds, technology lending and international capital,
and private investment and business investment are in small quantities. But government funds are
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limited after all, it can not meet the need of industy development, thus it should not be the main sources
of the funds[5].
5.3 From the exit mechanism: Low-carbon investment fund will gain its profit through saling stakes to
exit market. So the liquidity of assets is essential to the smooth operation of the fund. Through the
development for many years in overseas, it has formed seamless connection capital market such as IPO,
counter transactions, property transactions, mergers and acquisitions markets, asset securitization, the
internal market and so on. It provides well-developed exit channel for the development of industrial
investment funds. While in China, the development of multi-level capital market is imperfect. There are
many restrictions in motherboard and SME board. GEM has also just started. OTC equity market is too
distributed. It can not fully play its role as the OTC market supervision system is not sound and the
trading information is blocked between the parties. At present, we usually exit the market by the way of
foreign stock exchange. It restricts the development of low-carbon industrial investment fund because of
this single channel way[6].
5.4 From the term of personnel training: as the risk investment of industrial fund, if the managers
themselves have the problems, it will greatly increase the risk factors of industries and investment funds.
Therefore, it has a particularly important role of the quality of human resources, human structure, and
gives full play the role of team. In the U.S, a professional in these areas often are a sense of expertise
and investment, but also has a complex capital markets practice professionals. In China, due to the
constraints of traditional education system, it is still a lack of talent.
6 The Study of Solutions of China's Low-Carbon Industrial Investment Fund
Development
6.1 Fueling up the development of our low-carbon industrial investment fund by the way of
accelerating the formulation of relevant policy, which joint the strict management and the
governmental encouraging support together
On the one hand, In the basis of the existing legal framework, having Interpretation and supplementary
to the Specific provisions of the Company Law and the Trust Law: Make definitude provisions for the
Important parts in the mechanisms of establishing and launching, collecting money,Listing and Trading,
Financial management, Alteration and termination of the Fund, Operating rules, Routine monitoring and
exiting to lead the establishment and operation of the Industrial Investment Fund according to the law.
On the other hand, To encourage and guide the development of industrial investment funds and invest in
line with state industrial policies of investment through the methods of appropriate "tax incentives",
"Loan Guarantee Scheme", "enterprise expansion plan" policies and measures. In addition, we should
further improve the legal environment for low-carbon industries investment funds, guide the low-carbon
industries investment fund to develop normally [7].
6.2 Expand the financing channels for funding of China's low-carbon industrial investment fund
In terms of overall investment in China, there is no issue of lack of funds. As of the end of January, 2010,
Urban and rural household savings in China has reached 9.81 trillion yuan, approaching 10 trillion yuan.
How can activate this part of the funds, and put its every part to good use? Which need to actively
promote the reform of financial system, accelerate the effective transformation of savings to investment,
and use a small amount of government funding to guide the flow of social capital to industrial
investment, thereby promoting the development of China's industrial investment fund.
6.3Accelerating the establishment of multi-level capital market, improve the withdrawal
mechanism
Accelerate improve the exit mechanism of low-carbon industrial investment fund in the capital market.
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Improve the multi-level market exit system, which are composed by the board, the SME board, the
GEM, the property rights trading market, the agency share transfer system and the equity market. Firstly,
we must actively guide and encourage investment do IPO in low carbon investment fund industry
enterprises. Secondly, we must integrate the development of OTC equity market. Through joint,
cooperative, merger and other methods to integration networking among the property rights trading
market, the equity market and other OTC equity market, and actively establish regional OTC market for
low carbon industrial investment fund, we can provide them a good exit platform.
6.4 Strengthen the development of qualified personnel
For one thing, cultivating property invest conception by various channels and media to conduct
education and publicity; for another, training investment manager who have the ability of investment
and management by cooperating with foreign actively and reserving of talents by improving their ability
to risk management and guarding for our country’s industrial investment fund. In brief, we must
improve the overall quality of talent in industrial investment and solve personnel bottlenecks which
restrict the development of industrial investment [8].
7 Low-Carbon Industrial Investment Fund Development Prospects
In our country, though low-carbon industrial investment just entered the initial stage, we have enough
reason to believe that low-carbon industrial investment will spring up and low-carbon industrial
investment will have a golden age in our country. Analysis reasons on it, in the first place, development
of low-carbon economy is the trend. And at the same time, the increasing economic of China provide the
foundation for the development of industrial investment fund; secondly, our government provide a well
legal environment of policy for the low-carbon industrial investment fund by adjusting policies
constantly; thirdly, we have abundant domestic resources which provide solid financial protection for
the rapid development of low-carbon industrial investment. It is worth concerned that low-carbon
industrial investment is becoming a trend by reason of domestic bank, insurance companies and pension
involved which must inject new blood for the rapid development of low-carbon industrial investment [9].
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