Summary of Key Points
Hefei's state-owned assets have achieved a book profit of over one trillion yuan through investments in companies such as BOE, NIO, and ChangXin Technology, earning them the reputation of "turning stones into gold." However, this is not due to luck, but rather the result of a professional and rigorous investment process and institutional framework. The replicable aspect of the Hefei model lies in "how to invest" (rather than how much money to invest). While equity finance can supplement local fiscal resources, it cannot replace traditional finance; stable tax revenue remains the foundation for sustainable development.
I. Hefei's "Miraculous Operations" Are Not About Luck, but Professional Processes
Many people think of Hefei as being bold and lucky, but in reality, there is a systematic approach behind their decisions. For example, when they saved NIO in 2020:
- Identifying the Right Direction: New energy vehicles align with national strategies and fit Hefei's plan to build leading enterprises, industrial chains, and clusters.
- Consulting Professional Institutions: Organizations like UNIC Investment and Merchants were engaged to conduct comprehensive analyses of technology, market potential, and corporate value.
- Thorough Due Diligence: Debt, cash flow, and contractual risks were carefully assessed to ensure they could be quantified.
- Negotiating Terms: The investment terms, including the use of funds, core business activities, and exit conditions, were all clearly defined in the contracts to ensure the investment contributed to the local economy.
These steps are not isolated; they represent Hefei's gradual learning from experiences with BOE (in managing heavy asset cycles), NIO (in dealing with crises), and ChangXin (in the semiconductor industry). This is a result of a continuous learning process, not blind speculation.
II. The Replicable Aspect of the Hefei Model Is “How to Invest,” Not “How Much Money to Invest”
Many places claim they cannot follow Hefei's example due to limited funds, but the key lies in the investment approach itself, which can be summarized in six steps:
1. Assessing the Foundation and Setting Directions: For instance, before investing in ChangXin, Hefei already had a home appliance and automotive industry, with local demand for storage chips. This meant the necessary infrastructure (land, talent, supply chain) was readily available.
2. Finding Projects Based on Plans: BOE was brought in because Hefei is a home appliance hub, but its display screens relied on imports; NIO was chosen because new energy vehicles were already being developed in the area.
3. Quantifiable Risks: High-risk projects can still be invested in as long as the risks are clearly defined and can be priced and included in the contracts.
4. Linking Investments to Economic Benefits: Investing 7 billion yuan in NIO resulted in the establishment of a headquarters, research and development facilities, and a supply chain, generating benefits in terms of employment, tax revenue, and industrial growth.
5. Post-Investment Management: Hefei monitored NIO's production volumes and profit margins, while for ChangXin, they focused on product development and yield rates. Patience as an investor means setting phased goals and having mechanisms to correct any deviations.
6. Fault-Tolerant Approaches: Given the long cycles and high costs in the chip industry, Hefei adopted inclusive evaluation methods and supported policies for industry-university-research collaboration and talent development to create a positive cycle between the industry and finance.
III. A Trillion Yuan in Profit Does Not Equal Fiscal Revenue; Equity Finance Is Just Supplementary
ChangXin's listing led to claims that the "era of equity finance" had begun, but it’s important to remember:
- Market Value vs. Cash Flow: Stock market values fluctuate daily, and there are lock-up periods before profits can be realized, while the government needs stable cash flows for essential expenses like salaries and healthcare.
- Uncertainty in Equity Finance: The success of projects, timing of exits, and exit prices are uncertain, unlike steady tax revenue.
- The Foundation Is Still Tax Revenue: According to Guo Kai (President of CF40), fiscal stability relies on reliable sources of tax income. Equity finance is a supplement, not a substitute.
The true value of the one-trillion-yuan profit is that it has strengthened Hefei's state-owned assets, enabling them to invest in new projects, promote growth, and repeat this cycle. However, it does not immediately solve current fiscal pressures.
IV. Healthy Development of Equity Finance Depends on Several Institutional Guarantees
For equity finance to be effective, the following systems are necessary:
1. Diversified Assets: Investments should not be concentrated in a single project; instead, a portfolio of assets providing long-term stable returns is needed.
2. Separation of Professionals and Administration: The government sets goals and defines risks, while investment teams independently select projects and manage post-investment activities without administrative interference.
3. Budgeting Based on Actual Returns: Only actual dividends and exit profits should be included in the fiscal budget; book profits do not count.
4. Cyclical Adjustment: During good market times, some profits can be retained to protect assets during bad times, ensuring ongoing investment.
In summary, the true value of the Hefei model lies in the industries it has created, the jobs it has generated, and the long-term economic development it has driven—these are the real achievements that stand the test of time.