Summary of Key Points
The latest document issued by the State Council clearly states that "in principle, new government investment funds should not be established in counties and districts," putting a sudden end to the several-year "fondness for attracting investment through funds" in these areas. This decision is due to the fact that many counties have blindly followed Hefei's model, turning fund establishment into a tool for showcasing political achievements, which has even hidden risks of financing, debt accumulation, and corruption. Additionally, most counties are facing issues such as population decline and industrial hollowing out, lacking the necessary conditions for setting up industrial funds. The policy change is aimed at preventing these risks and guiding county economies towards more pragmatic development.
I. The Sudden Policy Change: From a "Loophole" to a Complete Ban
Last year, the policy suggested that "counties should strictly control the establishment of new funds, with special cases requiring approval from higher authorities." This year, it has been changed to "in principle, no new funds can be established"—almost as if it were explicitly forbidden. This shift essentially closes the door to new fund creations in counties. Why the sudden tightening? The enthusiasm for funds in counties had become somewhat excessive: by the end of 2025, nearly half of all government investment funds in the country were located in these areas. Many small counties, with little money and no industries, were still trying to establish funds, increasing the risks significantly, necessitating immediate action.
II. Why Can't Counties Follow Hefei's Model? Three Critical Shortcomings
Hefei's success with industrial funds, particularly in its investment in BOE and NIO, has inspired other counties to emulate it. However, most counties lack the necessary prerequisites:
1. Lack of financial resilience: Hefei is a provincial capital with substantial financial resources, capable of supporting investments that may not yield returns for several years. County finances rely mostly on national transfer payments and are often in deficit; any investment losses would be devastating.
2. Lack of industrial infrastructure: Hefei's investment in BOE was supported by its local electronics industry, creating a symbiotic relationship with the display panel production. Counties lack such industries, and even if they attract companies with incentives, they lack the necessary raw materials and supply chains to retain them.
3. Lack of expertise: Establishing funds requires professionals knowledgeable in both investment and industry. It is difficult for counties to find such individuals, let alone select viable projects.
As a result, many county funds have become mere symbolic gestures—for example, a county with less than 4 billion yuan in revenue has established 15 funds simply to keep up with others.
III. The Distortion of Fund Purpose: From an Industrial Tool to a Mask for Political Achievements
The original intention of establishing funds in counties was to promote industrial development through investment, but many have deviated from this goal:
- Political showmanship: Funds are used to create good-looking financial reports and rankings rather than to genuinely drive economic growth.
- Indirect debt accumulation: Some funds, while claiming to be investments, actually borrow money through state-owned enterprises, covertly increasing local debt.
- Corruption risks: The document highlights that some funds have become tools for illegal activities and new forms of corruption, such as funding favored companies or using them to transfer benefits.
IV. The Real Dilemmas Faced by Counties
The real problems in counties are population decline and industrial hollowing out, which cannot be solved by funds alone:
According to the seventh national census, more than half of county populations are decreasing, with young people moving to larger cities. Industrial weakness and financial strain, along with inadequate public services, are the real challenges. Instead of investing in risky funds, counties should use their limited resources on essential infrastructure such as roads, schools, and hospitals—these investments can truly attract residents and businesses.
V. The deeper Intent of the Policy: To Guide Counties Towards Pragmatic Development
The policy change is not just about preventing risks; it also serves as a reality check for counties. Not every county can become like Hefei, and their economies must rely on their own strengths. Those that need to shrink should stop trying to expand their industries, while those with unique resources should focus on developing their specialties (such as agriculture or tourism). Spending money on people's well-being and infrastructure is a more sustainable approach.
In summary: Counties should stop blindly following the trend of establishing funds. Instead, they should focus on retaining residents and improving basic facilities. The policy change aims to ensure that county economies develop in a more stable and pragmatic manner.