Summary in Plain Language
The saying “Investment doesn’t go beyond the Shanhaiguan Pass” has been around for 20 years. The essence of this belief is that in the past, market-oriented venture capital (VC) firms were reluctant to invest in the Northeast, creating a vicious cycle where “lack of capital → companies failing to grow → even less capital.” As a result, the Northeast became known as a “capital desert.” However, in the past 3-4 years, local state-owned VC firms in the region have stepped in with a very patient approach, lasting up to 20 years. By partnering with institutions like Harbin Institute of Technology, Changchun Institute of Optics and Mechanics, FAW Group, and Shenyang Aircraft Corporation, which possess unique scientific research and heavy industry capabilities, they have targeted hard-tech sectors. They have already invested in several listed companies and industry leaders, breaking this deadlock to some extent. Nevertheless, state-owned capital is still the main driver, and market-oriented private capital has not yet entered the region on a large scale. To completely shake off the label of “capital desert,” one last crucial step is needed.
Detailed Analysis
Why has the saying “Investment doesn’t go beyond the Shanhaiguan Pass” persisted for 20 years?
Many think the reason is a lack of good projects in the Northeast, but it’s actually an ecological issue. An established domestic VC firm invested in 10 projects in the Northeast; 7 resulted in huge losses, while the remaining project in Jilin, focusing on optoelectronic materials, returned 6 times the initial investment. Such high volatility made it unfeasible for market-oriented firms to participate.
The logic of market-oriented VC is to “enter quickly and exit just as quickly,” aiming to recoup their investment with interest within 3-5 years and move on to the next project. The Northeast, however, lacked the necessary support systems. If a firm from another region invested in a promising company, no other investors would be willing to take over in the next round. The company would struggle to raise funds for expansion or go public, leaving the investor with a huge loss. Over time, no capital dared to invest in the Northeast, and valuable research results, such as those from Harbin Institute of Technology, had to be taken to other regions for funding. This vicious cycle has continued for 20 years, exacerbating stereotypes.
Why have state-owned funds in the Northeast been able to break this cycle?
State-owned funds have a different goal from market-oriented VC: they aim to develop local industries. Their funds can last up to 20 years and are not focused on immediate profit. Their goal is to transform research into tangible industries and keep the region’s technological achievements in the Northeast. These local state-owned firms know the local strengths well, such as which teams at Changchun Institute of Optics and Mechanics have viable technologies. Moreover, the three provinces in the Northeast do not compete with each other but focus on their respective areas of expertise, avoiding waste of resources.
What concrete achievements have been made?
The actions of state-owned funds in the Northeast are not just empty promises. For example, the Jilin Changxing Fund, with 30 billion yuan from local finances, has leveraged 200 billion yuan in additional social capital, generating over a trillion yuan in industrial investment. They have invested in several high-value hard-tech companies, such as拓荆 Technology (a leading semiconductor equipment company), Fuchuang Precision (a core semiconductor equipment firm on the STAR Market), and Xinguang Optoelectronics (the first company from the Northeast on the STAR Market). One of their investments in wireless charging chips even returned 208 times the initial investment, outperforming many market-oriented VC firms in the South. The Northeast is now producing leading companies in new fields like humanoid robots, aerospace, semiconductors, and quantum technology. Even the nationally sought-after AI chip company, Muxi Shares, was funded by state-owned capital from Heilongjiang.
Don’t celebrate too soon; the challenge is still significant
While progress has been made, the region is only halfway there. The current situation is still largely driven by local state-owned capital, and market-oriented private capital has not yet entered on a large scale. The main issues remain:
1. Local state-owned funds are the main players, and market-oriented firms are still hesitant due to concerns about lack of follow-up investment.
2. Some guiding funds require that a large portion of the invested money be used locally, which may lead to a closed-off environment, preventing good projects from entering or local companies from accessing national resources.
3. There is a shortage of professionals with expertise in VC and corporate mergers and acquisitions. The region cannot rely solely on government funding; government money should be used as a support mechanism, not as a long-term solution.
True “investment beyond the Shanhaiguan Pass” would mean that market-oriented capital from across the country is willing to invest in the Northeast without government incentives. Only then will the invisible barrier be truly overcome.
In summary, while the state-owned funds in the Northeast have made significant strides, much remains to be done to fully break the cycle of capital scarcity.