How Do Industrial Guidance Funds Affect the Performance of Chinese Enterprises?

This study empirically examines the impact of investments in manufacturing firms by industrial-guided funds (IGFs), which have been established in large numbers since 2015 and are considered to play a crucial role in the implementation of China’s industrial policy since “China Manufacturing 2025,†on the output, including sales, profit margins, fixed asset value, and R&D of these firms. In particular, the following methods were employed during the analysis. First, we compiled a list of over 3,000 funds established until 2018 from the private placement database provided by zero2IPO, combined it with data on manufacturing firms from Orbis provided by Bureau van Dijk, and extracted from them the subsidiaries and sub-subsidiaries of government-sponsored funds. We then identified the timing of the funds’ investments in these companies. Then, we performed a difference-in-difference matching analysis using the firms that had received the investment as the treatment group and the remaining firms as the control group. We analyzed total sales, the number of employees, fixed assets, labor productivity, R&D expenditures/total sales, debt ratio, and return on equity. Our analysis revealed that although investments by IGFs increased fixed assets and equity capital significantly, the other variables did not change significantly. And significant change also did not exist in the ratio of R&D expenditures to sales. These results indicate that although the investment by IGFs increased the assets of the target firms, it did not have the expected effect on R&D capacity and productivity improvement.