“Governments at all levels must truly tighten their belts”—this statement from the Government Work Report rings out with conviction.

This means that it is becoming increasingly difficult to secure funding and to spend it effectively—to the point of having to “stretch every penny to go twice as far”...

Funding is hard to secure because we must “pay for results”; spending is difficult because “accountability follows failure.”

“Government investment” is essentially “government spending”—it is not spent lightly, and when it is, it is spent with great care. Put simply, funds must be directed where they are most needed.

Therefore, the government tightening its belt does not mean slowing down development, but rather pursuing scientific development. We must absolutely avoid making rash decisions or mismanaging affairs just to maintain a glossy facade, nor should we blindly expand operations or launch projects without regard for our financial resources.

You don’t know the value of rice and firewood until you run the household

When it comes to “expanding operations and launching projects,” one immediately thinks of semiconductor and new energy vehicle projects being pursued by local governments across the country. Although some projects undergo natural selection during development, this has fostered a clustering effect in core regions.

As things stand, for localities to develop these emerging industries, relying solely on endogenous growth is far from sufficient; they require significant support from mature external resources.

This puts investment promoters in a tough spot: they must not only secure valuable projects but also navigate various pitfalls while dealing with project partners’ exorbitant demands—the difficulty is self-evident.

After all, some companies are quite “comfortable” in industrial clusters, with suppliers on one side and service providers on the other. With markets, talent, and the entire supply chain readily available, why would they relocate to a completely new environment?

In such situations, when local governments attract investment and encourage companies to set up operations, most are willing to pay a “price,” providing targeted support that precisely addresses the companies’ needs. For example, subsidies for factory buildings and infrastructure support…

These measures aim to retain companies without crossing regulatory red lines, while also taking local fiscal conditions into account. For large-scale projects, a “case-by-case” approach is even more essential.

Take the new energy vehicle sector as an example: over the past decade, government subsidies alone have reached hundreds of billions of yuan. Have these investments yielded tangible results, or have they gone down the drain?

Undoubtedly, this approach—first using subsidies to stimulate the industry, then guiding companies toward healthy development, while generating technological breakthroughs along the way, and ultimately achieving “good money driving out bad”—has been a success.

However, in recent years, thanks to government support for the new energy vehicle industry, many automakers have made a fortune—but those good times are over.

Today, whether it comes to subsidies or venture capital, local governments naturally have their own “scale” to weigh whether any industry is worth investing hundreds of billions of yuan in.

A straight hook won’t catch any fish

Once local governments have weighed the pros and cons, they are gradually shifting toward supporting enterprises. How, then, has government investment changed?

01 The “Corporateization” of Government

Since the launch of comprehensive reform, local governments have allowed the market to play a role in resource allocation. It must be said that this was done to reduce government intervention in enterprises, redefine their functional roles, and adopt the concept of limited liability from the corporate sector.

From this perspective, local governments increasingly resemble a “corporate headquarters,” transforming fiscal funds from “expenditures” into “investments.” The key is to mobilize resources and “outsource” specialized tasks, focusing only on maintaining oversight and balancing input and output.

Over time, the ties between many enterprises and the government have grown increasingly close, serving as clear evidence of the growing “corporatization” and “conglomeratization” of local governments.

Meanwhile, the roles of local governments, local finances, and local state-owned assets in the local economy have become increasingly significant. How to leverage the government’s role in driving investment and local industrial development has thus emerged as a new challenge.

This has led to local governments supporting the development of the local economy and enterprises by establishing development zones and industrial funds, actively engaging in the capital markets, and recruiting professionals to work in local government.

The more the government “tightens its belt” and allocates funds to these areas, the higher the degree of corporate-style governance becomes, and the more impressive the results it can deliver.

02 The Government’s “Collaborative” Approach

In 2019, the "Regulations on Government Investment" were introduced, transforming the model of government spending. Simply put, the regulations permit a combination of various methods, including direct investment, capital injections, and investment subsidies.

As reforms advance, the role of government funds has shifted; they now function as a “lever” to mobilize social investment. Under this market-oriented model, government funds can both guide social capital toward the areas of greatest need and provide a long-term, stable investment channel for social capital.

The real challenge lies in how to allocate funds to support the growth of emerging industries and ensure that government investment aligns with economic needs.

Local government spending, in particular, strives for “optimal selection” and “maximized output.” In this arena, it is essential to strike a balance between “delegation” and “regulation” and to master the decision-making chain with ease.

Getting to the Bottom of the Matter

Today, when discussing industrial upgrading and technological innovation, financial support is inevitably a key consideration. For the government, this amounts to venture capital. Government industrial guidance funds, operating through market-oriented mechanisms, have demonstrated in fiscal practice that the vast majority of their investments are directed toward strategic emerging industries.

Why is this the case? It is determined by the nature of the industries themselves.

First, supporting and developing emerging industries is a national strategy. Allocating government-backed guidance funds to these sectors aligns with policy requirements and is institutionally safeguarded. Crucially, the State Council has established a roadmap for developing emerging industries, treating it as the top priority of industrial policy.

Second, emerging industries are highly dependent on R&D and innovation. It is not hard to imagine that, given the high market uncertainty and long development cycles, there is a greater need for “powerhouse” organizations capable of sharing risks with enterprises.

From the enterprises’ perspective, bringing in government funds as strategic investors not only injects capital but also provides a channel to resolve difficulties. From the government’s perspective, equity investments ultimately require an exit strategy, unlike subsidies, which are one-way expenditures.

In particular, some emerging industries are still in their early stages and have not yet formed distinct geographic clusters, which presents the government with opportunities to shape local investment strategies. However, since government-guided funds originate from local fiscal resources, they serve as tools for attracting investment and therefore must ensure that industries are established locally.

Currently, in the Yangtze River Delta, the Pearl River Delta, and certain major cities, using government-guided funds for projects poses few issues. However, in some developing regions, these funds play a limited role in attracting investment and may even cause market distortions. In some areas, to attract enterprises, government-guided funds—which should be equity investments—have been transformed into debt instruments.

For example, to attract other social capital to co-invest, government-led funds may promise to acquire the equity stakes of these investors in the future. This effectively provides a safety net for the investors, eliminating investment risks, but simultaneously creates a hidden liability for the local government.

Conclusion

Government fiscal restraint is a long-term policy direction, not a short-term response.

Public funds should be used to provide performance-based incentives, subsidies, and loan interest subsidies to enterprises, or to make investments as an alternative to direct grants. This not only reduces government interference in industries but also improves the efficiency of public fund utilization.