Summary of the Core Content
This article challenges the popular claim that Hefei is the “best city for venture capital (VC) investment,” arguing that its success is not due to luck-based VC strategies, but rather on the cultivation of a complete industrial chain tailored to local needs. VC investment was merely a remedy adopted by Hefei when it lacked geographical advantages. Behind this approach lies meticulous industrial planning—specifically, focusing on the “core, display, automotive, and integration” sectors—to create interconnected industrial clusters. The article also warns that excessive hype around VC can mislead other cities into following suit (such as Yichun in Jiangxi and Nanning, which invested in Nezha Automotive with disastrous results), and highlights that Hefei itself has had its share of failed investments (for example, the silicon carbide project by Lvxiao Technology).
Detailed Analysis
Why the Claim That Hefei is the “Best City for VC” Isn’t Valid?
- Not a Pioneer: Shenzhen established China’s largest state-owned VC firm, Shenzhen Venture Capital Group (SVCG), in 1999, long before Hefei.
- Limited Successful Cases: The commonly cited successes of Hefei’s VC include BOE, NIO, and Changxin Memory, which are relatively few and repetitive.
- Overlooked Failures: There have been failures too, such as the silicon carbide project by Lvxiao Technology. Hefei’s Changfeng County jointly invested in a 2.1 billion yuan industrial park for this project, but it was terminated earlier this year. Earlier attempts with companies like Rongsheng Heavy Industry and Xinhao Plasma also resulted in significant losses for the state-owned funds—these just didn’t make headlines.
In essence, Hefei’s VC efforts are not infallible, and it doesn’t deserve the label of being the “best.”
The Dangers of Overhypeing VC
The article points out that a CCTV program highlighted how state-owned funds in cities like Yichun (Jiangxi) and Nanning (Guangxi) followed Hefei’s lead by investing in Nezha Automotive, only to suffer heavy losses. These cities were misled by the media’s portrayal of Hefei’s VC success as a surefire formula for success. Without understanding the underlying industrial logic, they blindly copied Hefei’s approach and thus failed.
The Key to Hefei’s Success: Cultivating a Complete Industrial Chain
What does cultivating a complete industrial chain mean? For example, Kunshan once attracted investors for each of the over 1,000 components needed to manufacture laptops, eventually becoming a global hub for this industry. Without the geographical advantage of being near Shanghai, Hefei had to rely on VC to attract businesses 20 years ago. However, every investment was aimed at addressing specific industrial weaknesses.
- The Case of BOE: Around 2008, Hefei already had homegrown giants like Haier and Midea in the household appliance sector, but TV panels were imported, leaving it vulnerable to supply disruptions. Investing in BOE was both about filling this gap and because Hefei’s local production capacity could support BOE’s output—this wasn’t a reckless gamble; it was driven by real industrial needs.
VC as a Tool, Not the End Goal
Hefei’s VC strategy never focused on individual companies but on using them to drive the entire industrial chain. Take Changxin Memory as an example:
- Hefei’s state-owned funds held about 36.79% of the company’s shares and tolerated ten years of losses.
- However, this investment attracted numerous semiconductor equipment, materials, and testing companies to Hefei.
- The local integrated circuit industry’s output has grown from 18 billion yuan a decade ago to over 150 billion yuan—an eightfold increase.
For Hefei, the losses incurred by Changxin are insignificant compared to the benefits gained by the entire industrial chain.
Hefei’s Strategic Focus: “Core, Display, Automotive, and Integration”
Hefei later focused on the “core (chips), display, automotive, and integration” sectors, with all investments aligned with this strategy. Companies like NIO (automotive) and Changxin Memory (semiconductors) are part of this well-thought-out plan.
In Conclusion
Hefei’s success is not about luck but about careful planning: identifying its industrial shortcomings, understanding the potential benefits of investing in leading companies, and recognizing the long-term value of the entire industrial chain. Other cities should learn from this approach rather than blindly investing in hot industries, which often leads to costly mistakes.